Analysis of the Relative Impact of Inflation and Unemployment on Nigerian Economy (1980-2012)

Abstract

The Nigerian economy has been undergoing the most severe economic crisis of unemployment and inflation ever since the 1980s. Inflation has been staggering well up to double digit rates while unemployment rate has been rising astronomically. These twin economic evils have continued to cause considerable hardship for many Nigerian families and to pose a serious threat to the mental health of substantial proportion of the population. This study therefore aims at not only investigating the relative impact of inflation and unemployment on the level of economic activities in Nigeria but also, employing the Granger Causality test to determine the existence of any causal influence between inflation and unemployment. The empirical results indicate that both inflation and unemployment significantly affect the level of Nigeria’s economic performance, and that causality runs from inflation to unemployment. Also revealed is that the two variables are inversely related to economic growth both in the short-run and long-run. And finally, that inflation and unemployment are inversely related to each other in the short=run but directly related in the long-run. The researcher recommends the Central Bank of Nigeria’s (CBN) continuous pursuit, vigorously and transparently, the policy of inflation targeting, improvement of infrastructure and access to credit to make it possible for more people to do business in Nigeria. Also recommended is a partnership between the Ministry of Trade and Investment and the World Bank in the formers drive towards increasing foreign direct Investment inflow, job creation, and generation of policies towards the growth of small and medium enterprises (SMEs).

Keywords: Inflation, Granger Causality, Unemployment, Unit root, Co-integration