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PROJECT TOPIC- IMPACT OF INFLATION AND UNEMPLOYMENT ON THE ECONOMIC GROWTH IN NIGERIA

PROJECT TOPIC- IMPACT OF INFLATION AND UNEMPLOYMENT ON THE ECONOMIC GROWTH IN NIGERIA

ABSTRACT

This research work investigated the impact of inflation and unemployment on the economic growth of Nigeria within the sample period of 1980-2014. It has objective of estimating the relationship between inflation, unemployment and economic growth. To ascertain the long-run relationship between economic growth, inflation and unemployment. The researcher used time series data obtained from central bank of Nigeria between 1980-2014. The methodology that was adopted by the researcher was multiple regression analysis using Ordinary Least Square (OLS) econometrics method in testing objective of the work. Where Gross Domestic Product (GDP) was used as the regressed where as inflation (INF), Unemployment (UNEM) and Government Expenditure (GEX) were all used as the regressors. Different methods of Econometrics test were carried out such as; Augmented Dickey Fuller (ADF), Cointegration test, Vector Error Correction Mechanism (VECM) and LM serial autocorrelation, to ensure the validility of this work. The results obtained indicate that inflation and unemployment have negative and significant impact on the economic growth of Nigeria. The unit root test indicated that all the variables are stationary at first difference at 5% level of significance. The Cointegration test result obtained showed that there is long-run relationship among the variables employed and autocorrelation result indicated absence of autocorrelation. From the researcher’s findings, the work recommends as follows; That, Nigerian government and its relevant agencies should create the enabling environment for investors to enhance productivity and reduce inflation and unemployment. Secondly, that Nigeria should diversify its economy instead of over depending on oil. Again, that government should spend more fund on capital expenditure instead of recurrent expenditure that do not add to the national economic growth. Lastly, that government should spend more on agricultural sector to enhance production of food and raw materials for local industries.

CHAPTER ONE

INTRODUCTION

  • Background to the Study

The word inflation and unemployment sounds loudly in the market economy of the world today. Unemployment and inflation are very important when it comes to macroeconomic decision making. These two subject matters are variables of social and economic life of every country. These two words (Inflation and unemployment) are continuous and unpleasant situation that describe the endemic nature of a country’s economy.

However, it is worthy of note that inflation is economical to economic growth and development, although some authors maintained that if inflation is properly moderated, there will be sustainable economic growth. The problems of inflation and unemployment are not a new phenomenon because it has remained a problem in the country for many years now. Because of that reason the effect of the two phenomenon cannot be our emphasized.

The Nigeria economy has remained largely under developed inspective of the large huge human and natural resources. The country is risibly endowed with various minerals types all over the country. Huge amount is generated annually from petroleum product. More than 50 types of solid minerals have been discovered in over 500 locations in the country (Musa 2010). Yet the precipitate income of most Nigerians is low, unemployment and inflation rate very high.

There are many socio-economic problems. The economy has continued to witness economic recovery which is immediately followed by economic recession and depression. The situation in Nigeria is problematic the various macroeconomic policies that were set-up by government have been ineffective in actualizing sustained price stability, reduction in unemployment and sustained growth. The poor situation of Nigerian economy has confirmed the need to manage the economy effectively.

The continued economic crisis, with the associated problems of high inflationary pressure, high exchange rate, debt over- hang and adverse balance of payment are very difficult to explain. Against a high rate of unemployment and underemployment, a public sector, how ways and poor working conditions have been persistent high inflation rate in Nigeria. As a result, the full potentials of labour-surplus economy have not been properly utilized.

In the 1960s and early 1970s, the Nigerian economy provided jobs for most Nigerian and absorbed considerable imports of labour while inflation rate were low. The ways compete favorably with international standards and there was relative industrial harmony in most of the years. As a result of oil boom of late 1970s, there was mass migration of people from rural to urban area in search of jobs especially the youths.

In 1980s, there was down turn of in the economy and this resulted to high rate of inflation and unemployment: the rapid depreciation of Nigeria exchange rate in 1986 and inability of the most industries to obtain adequate raw materials required to sustain their production capacity. This caused sharp rise in general miss level, leading to a significant decline in real ways and increased hardship in standard of living of most Nigerians.

This 1980s, down turn of the economy, the 1986 devaluation Naria in relation to Dollar and inability of some industries to obtain raw materials to continue their production was the foundational origin of inflation and unemployment in Nigeria. Having seen the situation that Nigeria has experienced so far, we can now look at the definitions of inflation and unemployment as put together by different authors with different views and perceptions and compare their views lo the situation in Nigeria.

Firstly, according to Umaru and Zubaru (2012), the concept of inflation can be defined as the persistent rise in general price level of goods and services in a given country over a long period of time. They stated that, inflation has been intrinsic linked with money. As Humilton (2012), put it, “inflation occur when money supply increase faster than the production level of goods and services in the economy.

Ojo (2000) and Melberg (1992), the term inflation describes a general and persistent rise in the price of goods and services in the economy. On the other hand, unemployment can be regarded as a situation where the active puplations (working class) who are capable and willing to work at a prevailing market wages are unable to find job. Oluwole (1994), wrote that wages and prices jointly determine that income policies and wages policies significantly contribute to increase frequent strike by Nigerian workers.

This strikes often lead to inflation in the long run. This is due to the fact that workers were previously idle in their respectively homes instead of coming to work. Finally, as put by Oluwole (1994), the major macroeconomic goals of every government aims at ensuring healthy and long lasting economic growth to maintain relative price stability, attain high rate of employment, maintenance of balance of payment equilibrium and exchange rate stability.

All there are done to avoid inflation or deflation and the uncertainties that it may course. It is generally believed that attainment of macroeconomic goals of full employment and economic growth etc, depend on the maintenance of price stability and low inflationary environment (Ajide and Lawson 2032). Hence it is this background that this work aims at analyzing the impact of inflation and unemployment on the economic growth of Nigeria.

Government’s efforts to control inflation in Nigeria

The government of  Nigeria have made some effort to combat or control inflation in the recent years in the country. In the following ways;

  • price control measures,
  • wages control,
  • monetary policy; This was used to combat inflation in the following ways:
  • discouragement Commercial Banks from giving indiscriminately
  • Sectorial allocation of credit to the more productive sector of the economy.
  • Rising of the lending interest rate,
  • Reduction in the velocity of money in circulatin

(vi) Fiscal policy; this has also been introduced by the Nigeria government to combat in the following ways;

  • cutting down government spending,
  • Rising taxes to reduce households buy capacity.

PROJECT TOPIC- IMPACT OF INFLATION AND UNEMPLOYMENT ON THE ECONOMIC GROWTH IN NIGERIA

1.2 Statement of the Problem

There is at almost a universal consensus that macroeconomic goals specifically defined as low inflation, full employment and favourable balance of payment positively related to economic growth. Over the years the question of the existence and nature of the link between inflation, unemployment, and growth has being a subject of considerable interest and debate (Erbayral and Okoyan, 2008). In particular it is generally accepted that inflation and unemployment have negative effect on short, medium and long term economic growth (Broms and Easterly, 2008)

Inflation and unemployment are always regarded as a trade-off as any policy targeted at reducing one, will lead to escalating of the other. Hence, if inflation and unemployment is inimical to economic growth, it obviously follows that policy-makers should aim at a low rate of inflation as well as low rate of unemployment as much as possible. But how low should inflation and unemployment be? Should it 5% or 10%, for the matter should it be zero percent? Or put in other words.

Is there a level of inflation at which the relationship between inflation and growth will be negative?  Government of various countries are found facing a trade-off in the pursuit of low interest rate. This is because is argued that inflation and unemployment has negative relationship such that decrease in one will to increase in the other. The negative effect of inflation and on the economy cannot be overemphasized this is because inflation causes misallocation of resources that diminish the productivity and growth rate of economy in several ways;

(a)   It reduces incentive to save in the economy

(b)   It distorts personal and business investment decisions making

(c)   It also distorts the market signals that guide the efficient allocation of resources in the
market economy.

However, in most developing countries like Nigeria there are often simultaneous rise in the level of inflation and unemployment which often called stagflation, also unemployment reduces the productivities of the work-force and thereby reducing the economic growth at large. This and more of such problem is what this research work aims at investigation and consequently address. The empirical test of impact of inflation and unemployment on Nigeria economy which is the subject matter of this study shall provide precise answer to the relationship between inflation unemployment and growth how the could be tackled

1.3 Research Questions

In the course of carrying the research work the following research questions were
developed

(1) To what extent has inflation and unemployment impacted on Nigeria’s economic growth?

(2) Is there any significant long-run relationship between economic growth, inflation
and unemployment?

1.4 The objectives of the Study

The  main  objective  of this  study is:  to  examine  the  impact  of inflation  and unemployment rate on economic growth in Nigeria. The specific objective of this study includes the following:

  1. To estimate the impact of inflation and unemployment on economic growth of Nigeria.
  2. To ascertain long-run relationship between economic growth, unemployment and inflation.

1.5 The Hypotheses

The hypotheses to be tested are as follows;

Ho: Inflation and unemployment has no significant impact on economic growth of Nigeria.

H0; There is no long-run relationship between economic growth, unemployment and inflation in Nigeria.

1.6 Significant of the Study

The adverse effects of inflation and unemployment on economic growth has attracted attention of government and researchers all over the world. Among the main and major problems of policy makers are how to maintain low and stable unemployment as well as relatively stable prices so as to achieve high economic growth.

The significant of this study lies on the fact that huge amount of resources (Human an capital) are unemployed which could cause poor economic performance. This research work will help to improve the works of policy makers in addressing the issues of inflation and unemployment in Nigeria . Also, when this work is finished, will improve the body of existing literatures and also serve as an economic policy document.

1.7  Scope and Limitation of the Study

This research work investigates on the impacts of inflation and unemployment in Nigerian economy. Taking a good analysis on various ways  and means put by the government of Nigeria to control inflation, unemployment and other macroeconomic problems since 1980-2014.

The researcher encountered number of hindrances in the course of this work to include: data sourcing or data inconsistence due to poor nature of information management in Nigeria. Other includes: time factor, financial constraints and host of others that prevented the researcher from presenting a better work than this.

PROJECT TOPIC- IMPACT OF INFLATION AND UNEMPLOYMENT ON THE ECONOMIC GROWTH IN NIGERIA

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