The Relationship between Unemployment, Inflation and Crime: An Application of Cointegration and Causality Analysis in Nigeria

Abstract

The study investigates the relationship between unemployment, inflation and crime in Nigeria. The study examines the causal relationship between unemployment, inflation and crime in Nigeria for the period 1980-2011. The stationarity properties of the data and the order of integration of the data were tested using the Augmented Dickey-Fuller (ADF) test. The variables tested stationary at first differences. The Johansen approach of cointegration was applied to test for the long-run relationship among the variables. The result indicated three (3) cointegrating relations between the variables; the Granger-causality suggests that there is unidirectional causality running from unemployment and inflation to crime in Nigeria. The study concludes that unemployment in Nigeria Granger causes crime. The reason is that unemployment rate in Nigeria is a complementary indicator of income opportunities in the legal labour market. Therefore, when, unemployment rate increases the opportunities for earning income decreases which instigate the individuals to commit crime. The costs of committing crime go down for unemployed workers. The results of causality support this proposition that unemployment causes crime.  The study recommends that holistic effort should be made by governments at all levels to create jobs and arrest unemployment. Nigerian government instead of employing foreigners should sponsor her citizens abroad for studies in diverse fields of study.

Keywords: Cointegration , Causality Analysis, Unemployment, Inflation and Crime.