Financial Deepening and Unemployment in Nigeria: A Causal Analysis

Abstract

This study examined the causal relationship between financial deepening and unemployment in Nigeria from 1981 to 2015. Using secondary data obtained from the Central Bank of Nigeria (CBN) 2015 and from the World Development Indicators published by the World Bank, the study specifically examined the effect of financial deepening variables (ratio of credit to private sector to GDP, ratio of broad money to GDP and ratio of market capitalization to GDP) on Unemployment. The Error Correction Model (ECM) and Granger Causality Test were employed in the analysis and it was found that Credit to Private Sector and Broad money supply reduced unemployment implying that as more people gain access to finance, more job creating investments will be established to employ more people thereby reducing unemployment while Market Capitalization was not significant to influence Unemployment. In the long run all the variables were jointly found to influence unemployment and causality was found to be unidirectional flowing from financial deepening to unemployment. Among other recommendations, this study recommended that the Monetary Authority and the Government should make credit available to the citizenry especially the poor and the vulnerable.

Keywords: Financial deepening, Unemployment, Credit to Private Sector, Market Capitalization, Broad Money Supply.

DOI: 10.7176/JRDM/58-07

Publication date: August 31^st 2019