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                      American International Journal of Social Science Research; Vol. 4, No. 2; 2019 
                                       ISSN 2576-103X   E-ISSN 2576-1048 

Published by Centre for Research on Islamic Banking & Finance and Business, USA 
 

        136 
 

The Validity of Okun’s Law: An Empirical Evidence for Nigeria 
 

 
Divine Ndubuisi Obodoechi 
Department of Economics 

Faculty of the Social Sciences 
University of Nigeria, Nsukka, Nigeria 
E-mail: divine.obodoechi@unn.edu.ng 

 
Charles Uchenna Onuoha 
Department of Economics 

 Faculty of the Social Sciences 
University of Nigeria, Nsukka, Nigeria 
E-mail: uchennaonuohac@gmail.com 

 
Abstract  
This paper empirically investigates the relationship between economic growth and unemployment in Nigeria under the Okun’s 
Law framework. The Auto Regressive Distributed Lag model approach, the ARDL Bounds Test and Cointegration Test were 
employed in this paper. Economic Growth was also regressed on unemployment, log of industrial output, log of net foreign 
assets, log of foreign direct investment and population growth so as to know the impact of these variables on output. The 
research findings indicated that high the Okun’s specification does not hold in the Nigeria, the impact of economic growth on 
unemployment is negative and insignificant. We did however find that there is a positive impact of unemployment on economic 
growth, meaning that the phenomena of jobless growth may be in play in the economy. The Johansen Co-integration test failed 
to establish evidence of long run relationship between GDP, industrial output, unemployment, foreign direct investment net 
foreign assets and population growth. The ECM could not be employed because the variables were integrated of different 
orders. It was however found there exist a significant positive relationship between the aforementioned variables and GDP except 
for population growth. The government should consider the Industrial Sector as a priority sector in a bid for better economic 
growth and development. Population control measures should also be put in play to ensure that the population does not exceed 
the economic carrying capacity. The government should also play an important role in abating unemployment in the economy 
using direct and indirect schemes and strategies. 
 
Keywords:  ARDL, Okun’s law, Foreign Direct Investment, Industrial Output, Population Growth.   
 
1. Introduction 
One of the ironies of our time is that although the Nigerian economy is potentially and currently rich, the unemployment 
situation in the country is still very critical. Records of available data on the unemployment situation reveal that unemployment 
(particularly urban) is growing in seriousness (ILO, 1981). There is also evidence of the socio-economic consequences of 
unemployment;  

 There is a rising wave of crime particularly fraud and armed robbery. 
 Migration to the urban centers has been on the increase. 
 Increased occurrence of industrial disputes. 

The problem of mass unemployment is not new any longer as it has been with us in varying degrees for some decades. 
In fact, population explosion of participants in formal education and the economic recession of the early 1980’s have raised the 
situation to a critical level, which can no longer be ignored without disastrous consequences. 

The Commission on the Review of Higher Education popularly called "Longe Commission" (1992) reported that by 
1984, the phenomenon of graduate unemployment had begun to emerge and was generally believed to be due to the lopsided 
production of high level manpower from the universities in specific disciplines, with an acute shortage of high level manpower in 
a number of other areas. According to the UNICEF/FOS (1997) report, the main engine of the Nigerian economy is 
petroleum, but agriculture is the biggest employer utilizing about 75% of the workforce. There are, according to the report, 9 
dependents to 10 economically active people. The GNP per capita of Nigeria declined from US $ 6037 in 2015 to US $ 5867 
in 2016 (World Bank Development Indicators, 2017). 

The Nigerian economy is a developing economy and has its mainstay of economic performance in the energy sector. 
Crude oil exploration, development and exportation account for over 80% of the country’s foreign exchange earnings. 
Unemployment has been ever-present with poverty indices increasing over the years. From 1981-2007, the real GDP of Nigeria 



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has grown at an average rate of 3.92% (Central Bank of Nigeria, 2012). GDP growth peaked in the 1970’s and early 2000’s. 
Unemployment reached an all-time low in 1996 at about 4% of the total labor force. From the huge increases in economic 
growth, one would expect unemployment to be almost nonexistent in Nigeria. Aganga (2010) and Ogunmade (2013) in their 
independent appraisal of the Nigerian economy note that there was a decade of strong real GDP of 6.5% economic growth 
between 2000 and 2010, and in the same period, unemployment rate continued to rise annually from 11.9% in 2005 to 19.7% 
in 2009, and over 37% in 2013%. The evidenced economic growth has howevernot lead to economic development. The level 
and rate of poverty is still very high, the industrial sector is yet to takeoff, technological development is still at a rudimental 
stage, income inequality is high, mortality rate and child mortality rate is ever increasing, and in summary, Nigeria’s development 
index is still very low. 

Despite the social and economic consequences related with high unemployment rates, some additional issues remain 
unresolved. For instance; 

 Which factors are responsible for the existence of unemployment?  
 Does the size of unemployment follow an autonomous route independent from other macroeconomic variables? 
The relation between unemployment and growth has been a central issue for economists and policymakers over the past 50 

years. On the basis of empirical evidence, in the early 1960’s, the economist Arthur Okun developed a theory later known as 
Okun’s law. 

The classical school of thought holds the view that the relationship between employment and output is a one-way 
relationship that goes from the input of labor to output. The classical growth theory, as reflected in the aggregate production 
function (mostly a variant of Cobb-Douglas function) derived essentially from the technical relations that make the level of 
output a function of production inputs such as labor, capital, land, technology, etc. The premise of the classical model therefore 
is that the growth rate of employment (unemployment) is exogenous to the growth rate of output. This, however, does not 
preclude the classical economists' belief in the attainment of full employment equilibrium. In this perspective, the supply of labor 
is positively related to the level of real wage, while the demand exhibits a negative relationship with real wage, but a positive 
relationship with productivity (Falokun, 1999). 

The Keynesian theory explains the determination of output or productivity and employment/ unemployment in terms of 
aggregate demand. This approach sees demand for labor as a derived demand. Productivity (Output) growth (a la Verdoorn's 
Law), should increase the demand for labor thereby reducing unemployment. The Keynesian framework, as examined by 
Hussain and Nadol (1997), postulates that increases in employment (decreasing unemployment), capital stock and technological 
change are largely endogenous. Thus, the growth of employment (reduction of unemployment) is demand determined and that 
the fundamental determinants of long run growth of output also influence the growth of employment. This is in line with the 
Okun postulation. Thus the Keynesian school and Okun were getting at the same conclusion albeit through different viewpoints, 
Keynes from the aspect of aggregate demand and endogenous changes, Okun’s from the aspect of labor force participation rate, 
changes in the number of hours worked per person, changes in labor productivity and the ability of monetary policy to effect 
changes in exchange and output. The Keynesian prescription for reducing unemployment is for a sustained increase in aggregate 
total demand through direct increases in government expenditure or for adoption of policies that encourage more private 
investment. The Keynesians argued that, as long as there is unemployment and excess capacity in the economy, the supply of 
goods and services will respond automatically to this higher demand. They postulate that a new equilibrium will consistently be 
established with higher income levels and lower levels of unemployment. 

Okun answers the questions about the nature of unemployment by referring to the empirical investigation of the 
relationship between output and unemployment. Given that both variables, that is, economic growth and unemployment rate are 
affected to a greater or lesser extent by business cycle, we would expect a long-run relationship between these variables to exist. 
Within the context of this assertion, high rates of output growth will lead to a reduction of unemployment. Specifically, Okun’s 
Law or rule of thumb states that a 1 percentage point fall in unemployment is linked to a 3 percentage increase in the output of 
the nation. Okun’s Law suggests that an increase in transitory output is accompanied by a decrease in transitory unemployment. 
Okun’s law suggests the existence of a specific empirical relationship between economic growth and the change in the rate of 
unemployment. Several studies in different countries on the convergence of the Okun’s Law Coefficient (OLC) have gone 
underway since the Okun postulations came to light. The Okun’s law relationship has important implications for macro policy 
as the size of the OLC is an important indicator of the degree of interdependence of output and labor movements around their 
long-run oscillation paths and is regarded as a benchmark for policy-makers to measure the cost of higher unemployment and 
how to reduce increased trends in unemployment. 

Thinking of the Nigerian economy in this manner implicitly assumes that the components of output and unemployment 
are uncorrelated except for a negative correlation between the two transitory components. This law if it proves to hold true in 
Nigeria with regards to the relationship between output and unemployment will give policy makers an insight into how 
unemployment can be managed in the economy by controlling the growth rates of the GDP. This knowledge will help Nigerian 
policy makers manage the business cycle more effectively. 



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This paper seeks to test the validity of the Okun’s Law in Nigeria. The specific objectives are:  

 To ascertain whether the Okun’s Law or rule of thumb holds in Nigeria. 
 To ascertain the impact of unemployment on output growth in Nigeria. 
 To determine if there exists a long run and (or) short run relationship between output growth and unemployment in 

Nigeria.  
 To determine direction of causality between unemployment rate and output growth. 

 
2. Review of Relevant Literature 
Arthur Melvin Okun was the first economist who developed an economic model where he postulated a connected between the 
variations in the unemployment rate to the changes in the output of an economy estimated by changes in the GNP by running 
an econometric analysis using quarterly data from 1947: II to 1960: IV in the United States of America. The correlation 
between these two important economic variables is famously known as Okun’s law. It has since then been used as a benchmark 
by policy makers to measure the cost of higher unemployment and benefits of lower unemployment in an economy given the 
inverse relationship with the output of the nation in question. Discuss these two approaches in addition to newer additions to 
the body of his law. 

In 1962 Arthur Okun documented that U.S. unemployment tended to fall by 1 percentage point for every 3-
percentage point rise in gross national product (i.e., output); observers subsequently dubbed this empirical regularity “Okun’s 
law”. Okun originally stated that the economy experienced a 1 percentage point increase in unemployment for every 3 percentage 
point decrease GDP. In order to understand why the relationship between changes in output and changes in unemployment is 
not one-to-one, it's important to keep in mind that changes in output are also associated with changes in the labor force 
participation rate, changes in the number of hours worked per person, and changes in labor productivity.  The percentage 
increase by which GNP changes when unemployment falls by 1% is the Okun coefficient. 

Okun's law reinforces the notion that a country's output depends on labor. It is also a way to measure the effectiveness 
of monetary policy. Although the law only applies in the United States, the concept applies in all economies (that is, when more 
people have jobs, the economy is stimulated). Accordingly, a 1% change in employment may result in a different degree of 
increased output in other countries. 

It is important for us to enlighten our reader that since Okun's time, the relationship between changes in output and 
changes in unemployment has been estimated to be about 2 to 1 rather than the 3 to 1 that Okun originally proposed. (NB. 
This ratio is also sensitive to both geography and time period.) In addition, it has been noted that the relationship between 
changes in output and changes in unemployment is not perfect, and Okun's Law should generally be taken as a rule of thumb as 
opposed to as an absolute governing principle since it is mainly a result found in the data rather than a conclusion derived from a 
theoretical prediction. Notable economists have criticized this law on the basis that the majority of the change in output is 
actually due to changes in factors other than unemployment, such as capacity utilization and hours worked, holding these other 
factors constant reduces the association between unemployment and GDP to around 0.7% for every 1% change in the 
unemployment rate. It is however our view in this work that we will follow the Okun assumptions and postulation with a view 
to testing for truths associated with the law instead of criticizing the foundations of the law. Departing from this will make us 
fail the Occam Razor approach of using the most simplistic version of any theory of model. For example, an increase in labor is 
required for an increase in production, however labor can come in a variety of forms, such as increased hours worked or through 
technological advances. Capturing these variables in a model would risk making a simple relationship complicated and because of 
that Arthur Okun focused on unemployment, as he believed that unemployment covers hours worked and technological 
advances indirectly. 

Some authors have tested the Okun assertion before in Nigeria.  (Udude & Nnachi, 2017) using an Autoregressive 
Distributed Lag Model investigated the existence of the assertion of Okun’s Law in Nigeria from 1980 -2013. They found out 
that Okun’s Law does not hold in Nigeria. The coefficient does not even conform to apriori expectation. Conversely, (Oluyomi, 
Stephen, & Adeyemi, 2016) found in their work that the Okun’s Law holds in Nigeria. There exists long run and an inverse 
relationship between GDP and Unemployment. The Okun coefficient in their work is 1.75 signifying that unemployment 
changes really do impact negatively on output, although not to the tune specified by Okun. 

The Law has also been tested by other authors in their countries with varying degrees of OLC, some countries 
conform to limits of the law while others do not.  

(Hek & Dare, 2015) tested the validity of Okun’s law in Curacao. They used the Hodrick Prescott filter and 
Cubic/Quartic equations to calculate potential output and natural unemployment in Curaçao. They used Okun’s difference 

method and obtained that Okun’s coefficient in the long run is ‐2.3%, while Okun’s coefficient is ‐1.9% in the short run. 

Statistically significant short‐ and long‐run relationships were found between output and unemployment in Curaçao. 
(Dritsaki & Dritsakis, 2009) tested the Okun proposed relationship for four Mediterranean countries and obtained 

the following relationship; -0.024 for Italy, -0.017 for Spain, - 0.016 for Portugal and -0.007 for Greece. They believe that the 



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coefficient for Italy is higher than that of Greece because Italy is more industrialized than Greece. Summarily, all three countries 
have the postulated negative relationship. 

(Mercer-Blackman & Salazni, 2014) applied the Okun’s law to Trinidad and Tobago and found that the relationship 
exists, but it is a very weak one. They agreed with previous authors that the Okun’s relationship is seen more during the business 
cycle of recessions than expansions in absolute terms. They however note that unemployment figures have been underestimated 
in the country and might be a possible influence on their results.  

(Rubcova, 2010) in his work in the Baltic states in testing the Okun type relationship found that little evidence of the 
relationship was detected. His results were not robust to estimation but a slightly negative relationship was observed in some of 
the states. He posits that “it is obvious that Okun’s law is not a law, but rather a statistical regularity which has exceptions”. The 
work goes further to explain the likely cause of the nonexistence of the relationship by saying that “rigid labor market structure 
and inelastic unemployment rate response to the shifts in the output could possibly result in little evidence in favor of the OL 
proposition”.  

(Lal, Sulaiman, Jalil, & Hussain, 2010) using an integration approach to test for evidence of Okun type relationship in 
Asian countries. The work employed Fully Modified Ordinary Least Square (FMOLS) to run its test.  The results did not 
satisfy Okun’s law assertion. Even though the coefficients were negative for the countries, they were also largely insignificant. 
They conclude that their results do not support the implications of Okun’s Law in some developing countries because of 
asymmetric problems. 

(Anderton, Aranki, Bonthuis, & Jarvis, 2014) in their analysis went a step further by disaggregating GDP into its 
different components of Consumption, Investment, Government Expenditure, Import and Exports so as to understand differing 
reactions of unemployment to movements of the various expenditure components in the Euro area. The data set was from 
(1996Q1-2013Q4). They argued that allowing the output component elasticities to vary adds considerably to the predictive 
capability of the Okun relationship. Their results have it that it seems that unemployment is most affected by changes in the 
consumption component of GDP, while movements in foreign trade (export and import) expenditure have a significantly lower 
impact on movements in unemployment.  

(White & CHU, 2013) tested the Okun assertion in USA, Japan, and France. In France and Japan, the results show 
that the variables GDP and Unemployment have no effect on each other. However, Okun’s Law of positive GDP change having 
a negative impact on unemployment holds for USA.  

(Petkov, 2008) checked the UK data for the Okun postulations from 1973Q3 to 2003Q4. The results indicate that 
Okun's law is a valid empirical approximation. Their method exploits the Auto Regressive Distributed Lag (ARDL) approach, 
which is capable of dealing with fractionally integrated variables. They conclude that while there are some differences in the 
Okun's coefficient over time and in-between alternative specifications it seems clear that the Okun's Law continues to be a 
reasonably robust relationship in the United Kingdom and with their estimation method.  

(Cevik, Dibooglu, & Barisik, 2013) examined the presence of asymmetry in Okun’s law for nine transition economies 
by means of a Markov regime-switching model with a nonlinear estimation means of a Markov regime-switching model. Their 
empirical results showed a statistically significant Okun’s law for transition economies and imply the Markov regime-switching 
model is more appropriate than a linear model in characterizing Okun’s law. The unemployment rate displays statistically 
different behavior over the business cycle in transition economies. In general, job losses in downswing regimes exceed job gains in 
upswing regimes suggesting relatively poor job growth in recoveries and the results are robust across different specifications of 
Okun’s law.  

(Ayaz & Alkraidees, 2014) in their results show a long-run association between the unemployment rate and the GDP 
growth rate in both periods i.e. 2001: Q1-2007: Q4 and 2008: Q1-2013Q4, but no contemporaneous impact on the 
unemployment rate by the GDP growth rate. 

(Bryson, 2016) in his study examines the appropriateness of Okun’s Law for the Jamaican economy. Using the difference, 
output gap and auto- regressive distributive lags (ARDL) specifications, the study finds, at the aggregate level, a statistically 
significant relation between the unemployment rate and the output gap. The HP filter gap and production function gap 
specification supports Okun’s rule of thumb in his work. More specifically, the HP filter specification shows that the 
unemployment rate will decline by 0.16 percentage points and 0.36 percentage points in response to a one percent increase in 
HP filter gap and production function gap, respectively. 

 
3. Data and Methodology 
The data consists of annual time series observations for the period 1981-2016. The variables of interest are: Unemployment, 
Gross domestic Product (GDP), Foreign Direct Investment (Inward Flows), Industrial Output Value Added (measured in 
constant USD), Net Foreign Assets, Population Growth Rate. The data were collected from the World Bank Development 
Indicators and the National Bureau of Statistics (NBS). To achieve robust estimates, reduce the effect of noise and ensure that 
the estimated parameters can be interpreted economically, except unemployment rate, was logged prior to estimation. 



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In this paper we intend to investigate the validity of the Okun’s Law in Nigeria. We will adopt the Auto Distributed 
Lag Model which is the closest form of the Dynamic Version Approach of the Okun’s Law. Our first Model, an ARDL model, 
will be used to determine our first and third objectives of; the validity of the law, and the existence of a long run and/ short run 
relationship between output and unemployment rate in Nigeria. Our second model, an Ordinary Least Squares (OLS) model, 
will capture the impact of unemployment as well as other relevant variables on the output of the economy, as well as check 
existence of a long run relationship amongst the variables. An Error Correcting Model will be estimated on the second model to 
check for short run stability in the relationship of the variables involved. Finally, a Granger Causality Test will be used to check 
the direction of causation amongst unemployment and output in other to give meaning to our third objective.  
Our models are as follows; 
Model 1:  

 Functional Form of the Model 
       UNEMP = f (GDP) ----------------------------------------------------------------------------(1a) 

 The Deterministic/ Mathematical Form of the Model 

UNEMPt = β0 + β1GDPt + λiGDPt-k + ϕiUNEMPt-k -------------------------------------------(1b) 
 The Econometric Form of the Model 

UNEMPt = β0 + β1GDPt + λiGDPt-k + ϕiGDPt-k + µt -------------------------------------------(1c) 
Where: 

β0 = Intercept; λi = Coefficients of the Lag Variables of GDPt; ϕi = Coefficients of the Lag Variables of UNEMPt; k 
= 1, 2, 3, … (Successive Lags); i = 1, 2, 3 …. (Successive Lag Parameters); µt = Stochastic Error Term 
MODEL 2:  

 Functional Form of the Model 
 GDP = f (UNEMP, IO, NFA, FDI, POP_GR) -----------------------------------------(2a) 

 The Deterministic/ Mathematical Form of the Model 

GDPt = α0 + α1UNEMPt + α2IO + α3NFA + α4FDI + α5POP_GR---------------------------(2b) 

 The Econometric Form of the Model 

GDPt = α0 + α1UNEMPt + α2IO + α3NFA + α4FDI + α5POP_GR + µt -------------------(2c) 
 The Error Correction Model 

ΔGDPt-1 = α0 + α1 Δ∑UNEMPt-1 + α2Δ∑IOt-1 + α3Δ∑NFAt-1 + α4Δ∑FDIt-1 + α5Δ∑POP_GRt-1 + α6µt-1 + εt -----
-----------------------------------------------------------------------(2d) 

Where: 

α0 = Intercept; α1, 2, 3, 4, 5 = Coefficient of Independent Variables; Δ = First Difference Operator; μt-1 = Error Correction Term; 

εt= Error Term 
To check for the long run relationship among unemployment and output, The Bounds Test is employed for the 

ARDL model specification and the Johansen Cointegration test for the OLS specification of the second model. The Error 
Correction Model will only be employed if there exists a long run relationship amongst the variables in question else testing the 
speed of short run equilibrium to long run equilibrium will be a moot action. A Granger Causality Test is undertaken to check 
direction of causation among the two variables. 
 
4. Empirical Findings and Discussion 
This empirical analysis started off with tests of stationarity on all the variables, using both the ADF unit root test and the 
Phillips Perron unit root test procedures. With the lag length selected automatically by Schwarz Information Criteria and 
including trend and intercept, the results of these tests are shown in Table 1. The results indicate that Foreign Direct 
Investment, Industrial Output and Population Growth rate are integrated of order I (0) while Unemployment, GDP and Net 
Foreign Asset are integrated of order I (1). These results suggest that there may not be a long run stable relationship between 
these variables given their different orders of integration.  

Table 1: Unit Root Test Results 

Variable  ADF  Phillips-Perron Result 

GDP I (1)  I (1)  I (1) 

UNEMP I (1)  I (1)  I (1) 

FDI I (0)  I (0)  I (0) 

IO I (0)  I (0)  I (0) 

POP_GR I (0)  I (1)  I (1) 

NFA I (1)  I (1)  I (1) 



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Since all the variables are integrated of order I (0) and I (1), the unit root needs of an ARDL models are satisfied, we 
can go ahead and estimate model 1. We estimated our model 1 using the ARDL specification. We included the linear trend in 
our estimation because the dependent variable unemployment had a graphical positive trend. From this estimation result, we ran 
the Bounds Test to check for Long Run relationship between output and unemployment. Our results are shown below.  
 
Table 2. Regression Results 
 

 
From the results above, we can see both the regression results and the residual diagnostics which helps us to ensure that 

we fit the best model. For Model 1, there is only one lagged variable of UNEMP as recommended by the model selection 
criteria of Akaike and Schwarz Info Criterions. All the coefficients in the first model are statistical insignificant except for the 
first lagged variable of unemployment. This shows that the previous year’s unemployment rate causes the current year 
unemployment rate to increase at a decreasing rate. The Okun coefficient is very much above the Okun’s postulation, moreover,  
it is insignificant. There is an increasing trend in unemployment over the years, but this too is statistically insignificant. The 
model is BLUE and the residual diagnostics all conform to the appropriate levels. In the second model, all the coefficients are 
statistically significant, we have a very good fit as can be interpreted from the R-squared value. The impact of unemployment on 
output is both positive and statistically significant. A percentage point increase in the unemployment rate in Nigeria will lead to 
a 0.02 percentage change in the output of the economy. This does not conform to apriori expectations; however, the emerging 
concept of jobless growth can be used to explain this result. 

From the second model, there is a significant relationship between output in the economy and industrial output, 
foreign direct investment, net foreign assets and population growth. We can see that as the population of the country increases, 
there is a decrease in the output of the economy, this suggests pressure on resources and the carrying capacity of the 
infrastructure of the country. On the other hand, increases in FDI and NFA increases the output of the economy at a decreasing 
rate. The major variable with increases output in the economy is the output of the industrial sector.  

Model 1 ARDL Results Model 2 OLS Results 

Table 2: 

Variable  Coefficient  

Constant  24.3626**  

LGDP -2.3728***  

UNEMP(-1) 0.9537**  

@TREND 0.3685***  

R-squared 0.9616
48 

Adjusted R-squared 0.9579
37 

Akaike info criterion 4.1198
72 

Durbin-Watson stat 2.1656
59 

Prob(F-statistic) 0.0000
00 

  

Residual Diagnostics 
Jarque-Bera Normality Test 3.2440 
Breusch Pagan-Godfrey 
Heteroscedasticity Test 0.0222 
Breusch Godfrey 
Autocorrelation Test 0.4446 
Ramsey Reset Stability Test 1.5135 
  

 

 

 

Table 2: 

Variable  Coefficient  

Constant  -19.29636 

UNEMP 0.028548 

FDI 0.539531 

IO 2.296646 

NFA 0.311557 

POP_GR -2.712616 

R-squared 0.9878
28 

Adjusted R-squared 0.9858
00 

Akaike info criterion -
1.0472

76 

Durbin-Watson stat 1.5867
82 

Prob(F-statistic) 0.0000
00 

  

Residual Diagnostics 
Jarque-Bera Normality Test 0.1127 
Breusch Pagan-Godfrey 
Heteroscedasticity Test 0.7936 
Breusch Godfrey 
Autocorrelation Test 1.0892 
Ramsey Reset Stability Test 1.0381 
  

 

 

 



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All the residual diagnostics also conform to the expected statistical levels of a regression model. 
Both model’s F-statistics is significant. 

We will now show the result of the long run relationship tests of model 1 and model 2 using the ARDL Bounds Test 
and the Johansen Cointegration Test respectively.  
 
Table 3. Long Run Relationship Results 

 
As we can see from the table above, there is no long run relationship in both the first and second models.This means 

that there is no long run relationship between output and unemployment in Nigeria. According to Christian Dreger (2015), “If 
one variable is I (1) and the other is I(0), Cointegration cannot exist, and consequently, you could not proceed with an ECM, 
according to the Granger representation theorem”. Thus we cannot estimate the Error Correction Model as a result of the 
different orders of integration in the second model. Thus, there is no long run relationship between unemployment and output 
in Nigeria and the short run relationship is indeterminate. 

We will now estimate the Granger Causality Test to check direction of the causation between output and 
unemployment in Nigeria. 
 
Table 4. Granger Causality Test 

 Null Hypothesis: Obs F-Statistic Prob. 

 GDP does not Granger Cause UNEMP 34 1.19538 0.3171 

 UNEMP does not Granger Cause LGDP  0.63113 0.5391 

On the direction of causality between output and unemployment in Nigeria, we estimated the Granger causality model at lag 2. 
The results are as shown in Table 4. We find that there is no causality running between agricultural credit and agricultural 
productivity in Nigeria. 
 
5. Conclusion and Recommendation 
The findings of this study negate the existence of the Okun’s Law assertions in Nigerian economy. The ARDL approach was 
disproved. In Nigeria, increasing economic growth rates does mean decreasing unemployment rates, however, the magnitude of 
the change is not as postulated by the Okun’s law. The relationship statistically is insignificant. This could be as a result  of 
capital-intensive led growth strategies. The phenomena of Jobless Growth have been seen to manifest in many developing 
countries and this could be the case here in Nigeria. This means that government has to be actively involved in unemployment 
reduction strategies and efforts as economic growth here has not been able to absorb the labour force up to the capacity 
utilization rate necessary for the growth. Since there is no long run relationship between economic growth (output) and 

ARDL Bounds Test Johansen Cointegration Test 

 

ARDL Bounds Test 

Date: 12/31/18   Time: 15:31 

Sample: 1982 2016 

Included observations: 35 

Null Hypothesis: No long-run relationships exist 

      
Test Statistic Value k 

      
F-statistic  0.052775 1 

      
   

Critical Value Bounds 

      
Significance I0 Bound I1 Bound 

      
10% 5.59 6.26 

5% 6.56 7.3 

2.5% 7.46 8.27 

1% 8.74 9.63 
 

 

Date: 12/31/18   Time: 15:35   

Sample (adjusted): 1983 2016   

Included observations: 34 after adjustments  

Trend assumption: Linear deterministic trend (restricted) 

Series: LGDP UNEMP LFDI LNFA POP_GR LIO_CON   

Lags interval (in first differences): 1 to 1  

     

Unrestricted Cointegration Rank Test (Trace)  

          
Hypothesized  Trace 0.05  

No. of CE(s) Eigenvalue Statistic Critical Value Prob.** 

          
None *  0.863724  144.4621  117.7082  0.0004 

At most 1  0.510446  76.69771  88.80380  0.2703 

At most 2  0.492563  52.41288  63.87610  0.3131 

At most 3  0.343824  29.34784  42.91525  0.5411 

At most 4  0.296722  15.02276  25.87211  0.5727 

At most 5  0.085925  3.054665  12.51798  0.8700 

           



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unemployment, unemployment policies need to be sustained even in the face of massive surges in the growth rates of the 
economy. It should be noted that changes in unemployment significantly impacts on the output in Nigeria, albeit minutely.  
We found out that population growth has a negative relationship with output or GDP in the economy. This has very grave 
economic implications because if not controlled appropriately could lead to a massive downward spiral in the output of the 
country. The implication of this is that there is a massive pressure on the resources of the economy; the population is growing 
faster than the means of sustenance is growing. The Reverend Malthus theory may be in play here.  

The industrial output plays a massive role in the output of the Nigerian economy; it is a critical sector in the quest for 
sustained growth. Net foreign assets and foreign direct investment also contributed the growth of GDP (output) over the years . 
A unit increase in the industrial output leads to about adouble fold increase in the output of the economy. This means that the 
economy has unimaginable growth potentials in its industrial sector, if only it were to be properly harnessed. Foreign direct 
investment and investments abroad should also be encouraged as a means of growth as well. 
On the basis of the results of this paper, we recommend that; 

 The government is actively involved in unemployment reduction strategies. 
 There should be a proper population control measures in play. 
 There should be a massive investment in the Industrial sector of the economy. 

 Further studies are carried out to determine the relevant variables that cause and affect unemployment in the country.  
In conclusion, we have seen that the Okun’s rule of thumb does not hold in Nigeria, as a result of the findings of this work.  
There has been tremendous economic growth without a significant decrease in unemployment in Nigeria. The government 
therefore is advised to implement more viable and long lasting social programs and strategies, so as to control the unemployment 
situation in the economy. 
  
Acknowledgements 
This paper received no specific financial support and the authors declare that there are no competing interests whatsoever. My 
acknowledgement goes to Uchenna Charles for his immense support for his contributions towards the success of this paper.   
 
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