EFFECTS OF UNEMPLOYMENT AND INFLATION ON ECONOMIC GROWTH IN NIGERIA

CHAPTER ONE

INTRODUCTION

1. Background of the Study

Despite having enormous natural and human resources, the Nigerian economy has remained mainly underdeveloped. The nation is incredibly well-endowed with a wide variety of minerals.Petroleum products generate enormous amounts of money every year. In more than 500 locations across the nation, more than 40 different types of solid minerals have been found (Musa, 2010). However, there is a low per capita income, a high rate of unemployment, and high inflation. Numerous socioeconomic difficulties exist. Economic recovery has been ongoing, although it has been promptly followed by economic recession and depression.

According to Jhingan (2009), inflation is defined as a consistent and noticeable increase in the overall level of prices in an economy. While monetarists contend that inflation is detrimental to economic growth, structuralists contend that inflation is necessary for it (Doguwa, 2012). Nell (2000) stated that while single-digit inflation may be advantageous, double-digit inflation slows growth.According to Anochiwa and Maduka (2015), controlling inflation increase to a single digit level may be a key element in accelerating economic growth.

The International Labour Organization (1982) defined unemployment as all those over a certain age who did not have a job during the reference period, whether it was paid work or self-employment.They are currently looking for job and are available for it, but they were unable to get employment. Despite taking explicit steps to get work, they were unsuccessful.The required actions may include signing up with a public or private employment exchange, submitting an application to employers, checking at workplaces, factory gates, markets, or other gathering places, posting or responding to newspaper advertisements, enlisting the help of friends or family, looking for land, buildings, machinery, or equipment to start one's own businesses, securing funding, securing licenses and permits, etc.

In Nigeria, approximately 90 universities annually produce thousands of graduates, according to Chinedu (2015). Although this is a positive development, they continue to look for work on the job market. Employers frequently accused graduates of lacking the qualifications for the open positions.Most of them eventually resorted to various social vices like robbery, kidnapping, and drug trafficking out of frustration in order to make a living. Nigeria now has high unemployment and inflation. Inflation in Nigeria increased to 13.7 percent in April 2016, which is 0.9 percent more than the 12.8 percent number from the previous month.The severe shortage of petroleum supplies, which drove rises in transportation costs and, as a result, arbitrarily increased the cost of all other goods and services for several months, is the main cause of the cost-push inflation. At 17.6 percent in August, inflation reached a new 11-year high and climbed for the seventh consecutive month (NBS, 2016). According to Michael (2013), crude oil accounts for over 90% of Nigeria's foreign exchange profits, 80% of federal revenue, and a significant portion of the GDP growth rate.

90% of foreign exchange comes from oil, therefore when the price of oil fell, so did foreign exchange, which reduced the value of the naira. The majority of Nigeria's consumable goods, including refined petroleum, food, raw materials, and spare components, are imported. High inflation is being borne by the general public as a result of the rise in import prices for goods and services.Some businesses were affected by the government's attempt to implement a policy to control foreign exchange, which resulted in their closure. Additionally, due to power outages, some businesses were unable to manage the high cost of raw materials, spare parts, and diesel. According to NBS (2016), the country's Gross Domestic Product (GDP) fell by -2.06 (year over year) in real terms during the second quarter of 2016.Compared to the growth rate of -0.36% seen in the first quarter of 2016, this was 1.70 percentage points lower. Abdulsalam and Abdullahi (2016) claim that the Nigerian economy has remained mainly underdeveloped despite the declaration of an annual improvement in growth.Its expected growth rates for 2014 and 2015, 4.5% and 5.5% respectively, are far greater than those of industrialized nations like the USA, which saw a growth rate of 2.2% in 2014. Nigeria's growth has been characterized as exclusive growth, with low per capita income, high unemployment, and high inflation rates.

According to Bakare (2012), a quick glance at the data on Nigerian unemployment and output growth would indicate the existence of the newly popular concept of "jobless growth". On the basis of this context, the current study aims to investigate how unemployment and inflation may affect economic growth in Nigeria between 2015 and 2022.

1. Statement of the Problem

It's also confusing to see trends in Nigeria's unemployment and inflation rates from 1986 till someone passed away. According to the trend, in 1986, the unemployment rate was 5.3% and the inflation rate was 5.4%.Both the unemployment rate and the inflation rate were not constant throughout time but varied. The lowest unemployment and inflation rates ever were 1.8 percent and 0.2 percent, respectively, in 1995 and 1990. By 2012, the unemployment rate has reached 24.7%, while inflation has reached its highest level since 1999.

Macroeconomic policies' primary objectives were to achieve high, quick, and sustained economic growth as well as stable low unemployment and relative price stability, however the trends mentioned above suggest the opposite. How to establish and maintain a low and steady unemployment rate, as well as relatively cheap prices, in order to achieve rapid economic growth, was one of the main and major issues facing policymakers.Studies on the nature and causes of unemployment in Nigeria by Garba (2010) and Olowononi and Audu (2012) revealed unsettling patterns. Regarding the impact of unemployment and inflation on economic growth in Nigeria, very few studies have been conducted.Some recent studies primarily employed descriptive statistics (Olowononi and Audu (2012). Similar studies were undertaken by Aminu and Anono (2012), Bakare (2012), and Rafindadi (2012), and their conclusions were contentious, particularly when it came to the effect of the two twin evils (unemployment and inflation) on the expansion of the Nigerian economy.Aminu and Anono discovered a positive association between inflation and economic growth in Nigeria, however Bakare discovered a negative relationship between unemployment, inflation, and growth. Rafindadi (2012) also discovered a negative non-linear relationship between unemployment and output growth. Chang Shuai Li and ZI-Juan Liu (2012) carried out a similar analysis in China on the unemployment rate, economic growth, and inflation.The findings showed that in China, inflation boosted growth whereas unemployment had the opposite effect. Examining the connections between unemployment, inflation, and economic growth in Nigeria is necessary given the perplexing tendencies in Nigeria's economic growth rate, unemployment rate, and inflation rates, as well as the contentious findings of the empirical data.

1. Objectives of the Study

The main objective of this study is to examine the effect of unemployment and inflation on Economic Growth in Nigeria from 2015 – 2022. Other specific objectives of the study include;

1. To estimate the relationship between economic growth, unemployment and inflation.
2. To analyse the causes, effects and trends of inflation in Nigeria.
3. To assess the trends, structure and causes of unemployment in Nigeria.

Research Questions

The following questions were derived to give direction to the present study;

1. What is the correlation between economic growth, unemployment and inflation?
2.  What is the causes, effects and trends of inflation in Nigeria?
3. What are the trends, structure and causes of unemployment in Nigeria?

Research Hypotheses

The following were hypothesized;

Hypothesis 1

H0: Unemployment do not have a significant effect on Economic growth of Nigeria

H1: Unemployment have a significant effect on Economic growth of Nigeria

Hypothesis 2

H0: Inflation do not have a significant effect on Economic growth of Nigeria

H1: Inflation have a significant effect on Economic growth of Nigeria

1. Significance of the Study

The significance of this study is to examine the effect of unemployment and inflation on Economic Growth in Nigeria from 2015 – 2022

Findings of the study will provide based on how unemployment has affected the economic of Nigeria and hence sort ways to deal with it.

The significance of this study also lies on the fact that huge number of resources (human and capital) are unemployed which could cause poor economic performance.

The findings of this study will help policy makers to establish the extent of the effect of unemployment and inflation rates on economic growth.

The findings of this study will improve the body of existing literature and also serve as a policy document. The problems of highlevel unemployment and inflation need to be addressed in order to improve economic growth.

1. Scope of thre Study

This study is limited to the how unemployment and inflation has affected the economic growth of Nigeria from 2015 to 20222. The main causes of both high unemployment and inflation were looked into during the course of the study.The poor statistics on unemployment and inflation rates were the study's main weaknesses. As a result, care must be used when interpreting the results of any computations that employ the data. On the same variable, there are occasionally conflicting results from various sources