Unemployment and Economic Growth in Nigeria

Abstract

The rate of unemployment has risen in the last decade in most of the sub-Saharan African countries. The situation in Nigeria is rapid population growth with low level of employment rate. The theoretical proposition of the Okun’s law is that a negative relationship exists between unemployment rate and economic growth. This study intends to test the validity of Okun’s law in Nigeria. In order to examine the relationship between unemployment rate and economic growth, Error Correction Model (ECM) and Johasen cointegration test were employed to determine both the short run and long run relationships among the variables employed in the study. Empirical findings show that there is both the short and the long run relationship between unemployment rate and output growth in Nigeria. Hence, there is need to incorporate fiscal measures and increase the attraction of foreign direct investment (FDI) to reduce the high rate of unemployment in the country.

Keywords: Unemployment, economic growth, Okun’s law, cointegration, error correction model.

JEL Classification: B22, E24, F43, J64