Empirical Evaluation of the Causality between Real GDP and Unemployment Rate in Nigeria

International Journal of Research and Scientific Innovation (IJRSI) | Volume VIII, Issue VIII, August 2021 | ISSN 2321–2705

Empirical Evaluation of the Causality between Real GDP and Unemployment Rate in Nigeria

Igwe, Justice Ibeabuchi
Department of Economics, Faculty of Social Science
Ignatius Ajuru University of Education, Port Harcourt, Rivers State, Nigeria

Abstract: This study examined the causality between Real GDP and unemployment rate in Nigeria. The hypothesis of this study is anchored on Okun’s law. Data from the Central Bank of Nigeria statistical bulletin and National Bureau of Statistics was collected on Real GDP and unemployment rate from 1981-2019. This study employed the correlation test and pairwise causality test to determine the relationship-causality between Real GDP and the Unemployment rate in Nigeria. This study found a 65.93 percent correlation between Real GDP and the unemployment rate. The pairwise causality result shows that there is unidirectional causality between the unemployment rate and Real GDP. The transmission of causality asserts that unemployment granger causes Real GDP. This implies that employment of factor resources brings about high productivity that leads to an increase in Real GDP hence growth. This paper recommends the adoption of fiscal and easing monetary policy to boost firm’s absorptive capacity in the country. This policy will stimulate job creation which will in turn accelerate growth.

Keywords: Real GDP, Economic growth, Unemployment rate, Okun’s Law, Pairwise Causality test.

I.INTRODUCTION

The worrisome dynamics of the rising unemployment brings to question the new reality in Nigeria. The unemployment trend from 10.44% in 2015Q4, 14.23% in 2016, 16.20% in 2017 Q2, 20.42% in 2017Q4, to 23.13 in 2018Q3 raises questions about the inclusiveness of the Nigerian economy. Nigeria’s total labour force is estimated at 69,675,468 million. Out of this number, 33.3% are unemployed and 22.8% are underemployed. The total number of unemployed is put at 23,187,339 million. Nigeria’s unemployment rate is higher than the international unemployment rate of 17.5% (NBS, 2021). The situation has worsened despite the several interventionist programme of Buhari’s government e.g., N-power, NIRSAL loan, trader money, etc. The issue of inclusiveness and sustainable growth has been canvassed by policymakers as a means to stimulate economic activity and productivity. But the rising rate of unemployment, therefore, questioned the pro-job capacity of the Nigerian growth rate. The motivating question, therefore, is to what extent does economic growth granger cause unemployment in Nigeria? Does economic growth have a decreasing relationship with unemployment? Does a 1% increase in growth rate necessarily refers to a 1% decline in unemployment? This study, thus, brings to front burner whether Nigeria’s growth trajectory of 2.1% in 2015Q4 to -6.1% in 2020Q2 is presently put at 0.11% 2020Q4 which

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