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American Journal of  Applied 
Statistics and Economics (AJASE)

The Effect of  Unemployment on Economic Growth in Nigeria
Rasheed Olayemi Nojeem1*

Volume 2 Issue 1, Year 2023
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Article Information ABSTRACT

Received: April 16, 2023

Accepted: May 08, 2023

Published: May 17, 2023

This study investigates the trends and effects of  unemployment on economic growth in 
Nigeria using secondary data from relevant institutions for analysis from 2010 to 2020. The 
Auto Regressive Distribution Lag (ARDL) bounds test methodology is utilized to determine 
the long run relationship between unemployment and economic growth. The empirical 
findings using the ARDL Model confirmed that there exists an inverse relationship between 
economic growth and unemployment, and that unemployment leads to increasing crime 
rates in both short and long run.

Keywords

Economic Growth, 
Unemployment, Nigeria, 
Autoregressive Distribution 
Lag Model, Labor Force

1 Abeokuta, Nigeria
* Corresponding author’s e-mail: rasheedolayeminojeem@gmail.com

INTRODUCTION
Nigeria is presently experiencing a high rate of  
unemployment which has significantly contributed to a 
higher level of  poverty, whose effects and consequences 
have contributed to an increasing rate of  insecurity 
(Egunjobi, 2021).
Unemployment is both an economic and social issue 
affecting almost all countries and all people directly or 
indirectly. It causes social anxiety, and is manifested in 
the wave of  crimes, youth unrest and unstable socio-
economic structure rampant in some nations. The world, 
particularly developing nations like Nigeria are facing 
serious job challenges and widespread decent work 
deficits (Adesina, 2013).
Okun’s Law explains a meaningful empirical relationship 
of  output (GDP) and unemployment in macroeconomic 
theory. The law has been found to hold for many nations.

LITERATURE REVIEW
Over the years, theoretical and practical research has been 
carried out between unemployment and economic growth, 
most importantly the study done by Arthur Okun (1962). 
According to Okun’s study, increase in GDP causes a 
reduction in unemployment rate, on the other way round, 
low growth rate causes a risk in unemployment rate.
A Nigerian, Rafindadi, 2012) conducted a research using 
the OLS and Threshold model, the study revealed that 
a negative nonlinear relationship exists between GDP 
(output) and unemployment rate.
Omoke and Ugwuanyi, 2010) employ the co-integration 
and Gander-Causality test analysis to examine the 
relationship between money, inflation and output in 
Nigeria. The study revealed that there is no co-integrating 
relationship among the variables. 

Some studies also confirmed that unemployment 
contributes significantly to the increasing crime waves in 
Nigeria.
In the post-colonial times, Nigeria started experiencing 
high rate of  poverty and unemployment due to a fall in 
the price of  crude oil since 1982, resulting in reduction in 
foreign exchange earnings, inadequate raw materials for 
manufacturing industries which invariably affect business 
firms, leading to economic downturn, unemployment 
and poverty (Ada and Chigozie, 2010).
Due to this scenario, it becomes imperative for incoming 
governments to formulate various policies to address the 
rise in poverty, unemployment and crime rate by coming 
up with different programs.
Deep-seated corruption and lack of  good will by political 
leaders to formulate and implement policies, conflicts 
emanating from ethnicity, sectionalism, negligence of  
the agricultural sector and monoculture (reliance of  
the country solely on oil revenue) contribute to Nigeria 
economic mess.

MATERIALS AND METHODS
The data used in this research are collected from the 
World Bank database, the National Bureau of  Statistics 
(NBS) and International Labour Organization (ILO) 
covering 2010 through 2020.
Okun’s Model is adopted in the study. Unemployment 
and crime rates are the independent variables, while 
economic growth based on real GDP is the dependent 
variable. It should be noted that the Okun’s Law is a 
reduced version of  Philips Curve which explains that 
there is inverse relationship between the GDP growth 
rate and unemployment rate.
The Model explains thus;

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Am. J. Appl. Stat. Econ.1(1) 11-14, 2023

Rgdp =  f  (Uempl….)------------------------------(1)
Rgdp = β1 + β2 unempl + µ-----------------------(2)
Rgcr = (Crimr)
Rgdp  =  GDP Growth (as in Economic Growth)
Unempl is the unemployment rate
β1, β2 = parameters
µ = error term
β1 < 0 and β2 > 0 (meaning that the expectations are β1, 
β2 having negative values)
To examine whether there is a long run relationship the 
unrestricted error-correction model (UECM) is adopted:
∆𝐿𝑌𝑡=𝛼1+𝛼𝑇𝑇+𝛼𝑌𝐿𝑌𝑡−1+𝛼𝑈𝑛𝑒𝑚𝑝𝑙L𝑈𝑛𝑒𝑚𝑝𝑙𝑡−1+
∑ 𝛼𝑖∆𝐿𝑌𝑡−𝑖𝑃 i=1 ++ ∑ 𝛼𝑗∆𝑈𝑁𝑡−j 𝑞𝑗=0 +𝜀1𝑡    
Then, the use of  ARDL model to ascertain the retention 
of  lagged level variables is done.
The null and alternative hypotheses are as follow:
Ho : Y = Y2 = 0
Hα : Y1 ≠ Y2 ≠ 0

If  t-calculated is greater than the table value, we reject the 
null hypothesis (Ho) and accept the alternative hypothesis 
(H1), on the other hand, if  t-calculated is less than the 
table value, we accept the null hypothesis (Ho) and reject 
the alternative hypothesis (H1).

RESULTS AND DISCUSSIONS
The data is used for an empirical analysis of  unemployment 
for the period between 2010 and 2020. The data give a 
detailed analysis of  the estimation result, and provide 
evidence on the extent and direction of  influence of  
key variables on empirical analysis of  unemployment, 
economic growth and insecurity in Nigeria. The specific 
equations are estimated using the Auto Regression 
Distribution Lag (ARDL).
The interpretation of  the result in respect of  the 
coefficient of  various regressions is stated in Table 1 and 
2 below at 95% level of  significance. 

Table 1: The interpretation of  the result in respect of  the coefficient of  various regressions 
Variable Coefficient Std. Error t-Statistic Prob.  
C 86.65519 157.1506 0.551415 0.5964
UNEMR -21.58504 43.44426 -0.496845 0.6327
CRIMR 0.000274 0.000727 0.376487 0.7163
R-squared 0.034069 Mean dependent var 7.705155
Adjusted R-squared -0.207414 S.D. dependent var 2.787632
S.E. of  regression 3.063117 Akaike info criterion 5.303744
Sum squared resid 75.06150 Schwarz criterion 5.412261
Log likelihood -26.17059 Hannan-Quinn criter. 5.235339
F-statistic 0.141081 Durbin-Watson stat 1.883278
Prob(F-statistic) 0.870532

Table 2: Vector Autoregression Estimates
Date: 04/27/22   Time: 07:50
Sample (adjusted): 2010 – 2020
Included observations: 9 after adjustments
Standard errors in ( ) & t-statistics in [ ]

GDPG UNEMR CRIMR
GDPG(-1) -10.68980 0.045756 -4227.818

(18.0119) (0.07148) (17496.9)
[-0.59349] [ 0.64017] [-0.24163]

GDPG(-2) 10.49381 -0.040689 4815.623
(18.9805) (0.07532) (18437.8)
[ 0.55287] [-0.54023] [ 0.26118]

UNEMR(-1) -2509.378 10.76068 -1059910.
(4558.20) (18.0879) (4427871)
[-0.55052] [ 0.59491] [-0.23937]

UNEMR(-2) 2678.545 -10.41685 1099358.
(4616.53) (18.3194) (4484537)
[ 0.58021] [-0.56862] [ 0.24514]

CRIMR(-1) -0.000904 3.70E-06 0.345943

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Am. J. Appl. Stat. Econ.1(1) 11-14, 2023

 (0.00080)  (3.2E-06)  (0.78160)
[-1.12372] [ 1.15961] [ 0.44261]

CRIMR(-2) -0.000508  2.11E-06  0.469593
 (0.00081)  (3.2E-06)  (0.78736)
[-0.62646] [ 0.65616] [ 0.59642]

C -663.6666  2.549163 -173171.3
 (387.078)  (1.53601)  (376010.)
[-1.71456] [ 1.65960] [-0.46055]

R-squared  0.819845  0.986470  0.842509
Adj. R-squared  0.279380  0.945879  0.370035
Sum sq. resids  11.72001  0.000185  11059394
S.E. equation  2.420744  0.009606  2351.531
F-statistic  1.516924  24.30289  1.783185
Log likelihood -13.95877  35.80616 -75.86749
Akaike AIC  4.657505 -6.401369  18.41500
Schwarz SC  4.810902 -6.247972  18.56840
Mean dependent  8.202567  3.845944  15444.44
S.D. dependent  2.851646  0.041292  2962.731
Determinant resid covariance (dof  adj.)  0.000000
Determinant resid covariance  0.000000

Explanation of  the Figures & Tables:
The coefficient of  the variable, C = 86.65519
This value shows that when unemployment rate and crime 
rate are held constant (i.e. equal to zero), the Nigerian 
economy would grow by 86.65519.
For Unemployment Rate T statistics value = - 0.496845, 
while the table value = -2.365 (from T test table).
Then, - 0.496845 > - 2.365
Therefore, we Reject the Null hypothesis.
For Crime Rate, T statistics value = 0.376487, while the 
table value = 2.365
0.376487 < 2.365
Therefore, we Accept the Null hypothesis.
The value of  R-squared = 0.819845
Expressing this as a percentage gives 81.98%.
This shows that unemployment and crime rate have 
81.98% on the economic growth in Nigeria.

CONCLUSION
The study investigates the effect of  unemployment on 
economic growth using data between 2010 through 
2020 in Nigeria and utilizing Arthur Okun’s Law. The 
Autoregressive distribution lag (ARDL) approach 
revealed that there is a long run relationship between 
economic growth rate and unemployment rate in Nigeria. 
Also, an increase in unemployment rate leads to an 
increase in crime rate. 

LIMITATION
Poor financing is a limiting factor to this research work.

RECOMMENDATION
Moral Reformation: Impressive growth cannot be 

achieved in an economy without moral values. Today, 
Nigeria is ranked one of  the most corrupt nations in 
the world. A country having many of  its population as 
fraudulent, inconsiderate and dishonest people will not 
grow. There is a compelling need to re-orientate the 
citizens of  the country to be honest, truthful, sincere, just 
and fair in all of  their endeavors.
The Education Sector: The Nigerian education system is 
tailored to produce job seekers rather than job creators.  
The syllabuses and curriculums used in Nigerian schools 
need to be re-designed so that learning in schools is 
directed toward self-employment, self-reliance and self-
emancipation.
The Rule of  Law: African states, particularly Nigeria are 
facing a drastic decline in social justice. Gone are days 
when everyone is accountable to the law. Political office 
holders and government officials are fond of  manipulating 
court orders when they embezzle or loot the public 
treasury. Billions of  naira earmarked for capital projects 
in various sectors of  the economy in order to bring about 
tremendous growth has been siphoned to private pockets 
by political office holders and government officials.  For 
the economy to grow, Nigerian judicial system needs a 
complete overhaul. The sharpest weapon against corrupt 
practices is prosecution. Corruptions increase when 
corrupt elements go scot-free.
The Petroleum Sector: Nigerian refineries need to be 
repaired to enable them work at full capacity. Petroleum 
revenue should be judiciously spent. Subsidiary companies 
should be established for processing and marketing 
various by-products of  crude oil.
Agricultural Sector: An efficient agricultural sector is 
needed to feed the ever increasing population in the 

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Am. J. Appl. Stat. Econ.1(1) 11-14, 2023

country, and to also create employment opportunities, 
provide raw materials for local industries and play a vital 
role in production and exportation of  cash crops to 
facilitate the much needed growth in the Nigeria economy. 

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