The Impact of Unemployment on Economic Growth in Nigeria: An Application of Autoregressive Distributed Lag (ARDL) Bound Testing

This study examined the relationship between unemployment and economic growth in Nigeria. It also determines the effects of unemployment on economic growth in Nigeria. These were with the view to analyze the impact of unemployment on economic growth and proffer recommendations towards enhancing economic growth and reducing unemployment in Nigeria in this present time economic challenges. Annual secondary data sourced from the Central Bank Statistical Bulletin and National Bureau of Statistics covering the period 1986 to 2015 were used. Data collected include unemployment rate and growth rate of Gross Domestic Product. Data collected were analyzed using the ARDL Bound Testing and the Parsimonious Error Correction Model (ECM) of the ARDL Model to test the relationship and analyzed the effect respectively. The findings showed that there is no long- runs relationship between unemployment rate and Economic growth in Nigeria; although, with effective policies, the long-run increase in unemployment has a growth enhancing mechanism on economic growth which is statistically significant (t=3.748221, p<0.01). Also, results from the short-run Parsimonious Error Correction Model indicate that a 1% increase in unemployment lead to 20.6% increase in real output in the third period which is statistically significant (t=2.055056, p<0.1). This shows that unemployment in Nigeria is growth enhancing through the informal sector. The Error Correction Term (ECT) shows a speed of adjustment of 65.5% between the short-run disequilibrium and long term equilibrium. The study recommends among others, the need to formulate policies to ensure entrepreneurship development such as the deregulation of the labour market which is likely to reduce unemployment and improve the growth and welfare of Nigerians.