The Relationship between Unemployment and Economic Growth in Nigeria: Granger Causality Approach

Abstract

The study examined the relationship between unemployment and economic growth in Nigeria; and specifically focused on the impact of unemployment on economic growth for the period 1980-2013. Cointegration test, Vector Error Correction Model (VECM) technique and Granger causality test were employed in the analysis. The variables utilized in the investigation include real gross domestic product (RGDP), unemployment rate (UNEMP) and private consumption expenditure (PCE). Stationarity test was conducted and the results indicated that all the variables except UNEMP were stationary at level; however, UNEMP became stationary after first differencing. The cointegration test result revealed that long run relationship exists among the variables under study. More so, VECM result showed that unemployment has negative and significant impact on RGDP. Finally, the Granger causality results indicated unidirectional relationship between UNEMP and RGDP, with causality running from RGDP to UNEMP. Based on the findings above, the study therefore, recommends that government should as a matter of urgency create more employment opportunities to absorb the teeming population of the unemployed labour force in the country through modernization of the agricultural sector, bring in modern equipment in the facilities of agriculture to make the sector more attractive to all citizens despite one’s qualifications and profession, as that alone would go a long way in reducing unemployment level in the country.

Keywords: Nigeria, Economic growth, Unemployment, Cointegration, Granger causality