UNEMPLOYMENT AND THE NIGERIAN ECONOMY NEXUS: AN ERROR CORRECTION MODELLING. (1991 – 2025)

Abstract

This study, Unemployment and the Nigerian Economy nexus, investigated the relationship between unemployment and economic growth in Nigeria. The study was designed on two models: model 1, examined the effects of government expenditure, foreign direct investment, banks interest rate and domestic investment on unemployment. While model 2, examined the resultant effect of unemployment on economic growth proxied by real gross domestic product. A time series data on unemployment rates in Nigeria from 1991 to 2025 was analysed on government expenditure, foreign direct investment, bank interest rate and domestic investment using the ordinary least square (OLS) regression technique. The findings of this work revealed that the coefficient of determination (R²)- R squared ) is 0.887, which implies that 86.7% of the changes in unemployment rate in Nigeria was caused by explanatory variables. The remaining 13.3% of variations in unemployment rates in Nigeria are caused by other factors which are not captured in the model. The second model revealed that the coefficient of determination- R²  was 0.995% which implies that the unemployment rate and the control variables are 99.5% responsible for the changes in real gross domestic product. It was also found that the explanatory variables, government expenditure and foreign direct investment were statistically significant while bank interest rates and domestic investment were insignificant. The joint F-test result showed that the explanatory variables are jointly significant, which means that the model has a good fit. The study as well found, there exists a Nexus (connecting point or relationship), between, unemployment & Nigerian economy which are influenced by various factors such as; economic growth, government policies, skills, education, labour laws  etc. Based on this, the study  therefore recommends  that the government and all relevant regulatory institutions should strengthen investment policies and processes to ensure that all government expenditures are channelled to the right direction. This would create more employment by reducing unemployment bottlenecks,  increase production and productivity, and increase aggregate demand and economic growth in Nigeria.