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The highly unstable economic conditions in Nigeria have been a major source of concern among economist and policy makers in recent time. The growth in Nigeria economy has been described as an exclusive growth which is worrisome and calls for concern as the per capita income is low while unemployment and inflation rates are high.
This research work sets out toexamine the relationship that exists between inflation, unemployment and the economic growth of Nigeria. From the research work, we discovered that unemployment and inflation through the use of the instruments of investments, exchange rate, Government expenditure and money supply could be controlled toachieve economic stabilization.
This work also viewed the different types of unemployment well distinguished by economist they include cyclical or Keynesian unemployment, frictional unemployment, structural unemployment and classical unemployment. Some additional types of unemployment that are occasionally mentioned are seasonal unemployment, hardcore unemployment, and hidden unemployment.
This work also focused on the types of inflation the world currently face that is Cost-push inflationand demand-pull inflation. This research work consist of a dependent variable in its hypothesis and some independent variables to explain the effects of unemployment and inflation on economic growth,the Johansen co-integration test and a vector error correction method (VECM) will be employed to carry out an investigation on the subject matter to derive the significance of the independent variable on the dependent variable. A data covering the duration of 36 years (1980 – 2016) was introduced in the model, the result was established, interpreted and conclusion was drown with recommendation.
1.1 BACKGROUND OF STUDY
Unemployment and inflation are persistently complex and alarming problems to every economy. These twin macroeconomic variables are significant in influencing economic growth especially in developing economies like Nigeria.The growth in Nigeria economy has been described as an exclusive growth which is worrisome and calls for concern as the per capita income is low while unemployment and inflation rates are high.
In the 1960s and early 1970s, the Nigerian economy provided jobs for most Nigerian and absorbed considerable imported labor while inflation rates were low. Overtime, especially with the exploration of oil in Nigeria, the rate of unemployment gradually began to rise. According to …., this was as a result of the excessive migration of people from the rurla areas into the urban regions.
According to Aminu, et al., (2013) government in Nigeria over the years has been pursuing various policies aiming at reducing unemployment and achieving price stability but these two twin evils keep on increasing day by day. Government and private groups tried over many years to create employment opportunities for the teeming youths. The National Directorate of Employment and school to land Skill Acquisition programmes have youth employment as the primary goal. The National Employment Policy, approved in 2002, aimed at achieving full youth employment and encouraging more private job creation. The policy emphasized linking education to the needs of the labour market. Entrepreneurship was compulsory on the curriculum of all Nigerian Universities. But youth unemployment continues to rise. There remains a skills-mismatch for the labour market, including for university and college graduates. The Central Bank started Entrepreneurship Development Centres (EDCs) in the country’s six main geographical zones. There is entrepreneurship training for unemployed university, polytechnics, college and secondary school leavers. By January 2011, EDCs had trained and counselled over 34,000 graduates, created about 2,800 jobs and enable about 1,000 graduates to access N171million for their activities.
President Jonathan introduced the “Youth Enterprise with Innovation in Nigeria” (YouWin) programme in 2010 aiming to encourage and support youth business ideas. The Nigerian Youth Entrepreneurship Development Programme, launched by the ministry of Youth Development, also seeks to enhance skills and experience and provide access to finance for youth entrepreneurs. The programme is expected to benefit 10,000 people aged between 18 and 35.
According to Wikipedia, the free encyclopaedia (2013), Oil companies have also helped employment efforts. In 2004, Shell Petroleum Development Company (SPDC) launched a youth development programme to provide skills for self-employment. It trained more than 1,900 people in entrepreneurship, leadership development, conflict management and industrial vocational skills. Nigerian Liquefied Natural Gas (NLNG) launched the Youth Empowerment Scheme (NLNG YES) in 2004 targeted at youths from over 100 rural communities. By 2011, more than 660 people had been trained. Several agencies and schemes were established to tackle poverty and unemployment, including the National Poverty Eradication programme, the small and Medium Enterprises Development Agency and Microcredit and Entrepreneurship Development schemes. In some local government in the country especially Lau LGA Palliative staffs were also employed to reduce unemployment in the country.
According to CBN communiqué No. 78 (2011), by 1993, it was clear that the macroeconomic policies pursued were no longer sustainable and needed drastic change. In response to the ensuing macroeconomic instability, government reverted to a guided de-regulation in 1994. Interest rate again was administratively fixed. The exchange rate regime was changed and the autonomous foreign exchange market (AFEM) was introduced in 1995, while fiscal measures were introduced to curtail deficits. However, because these measures were taken at a time when there were excess money supply, scarce foreign exchange, severe shortages in commodity supply, as well as continual labour and political unrest following annulment of the June elections of 1993, there was remarkable rise in the rate of inflation. However, government has mounted an elaborate food programme that would promote food crop production and export as well as pay more attention to the development of small and medium scale enterprises to promote wealth creation and increase output.
The exchange rate has also been relatively stable, with significant real appreciation. In response to the global economic crises, the Central Bank of Nigeria (CBN) pursued measures in 2009 and 2010 to promote growth and financial stability. However, in 2011, the central bank tightened monetary policy to mop-up excess liquidity in the banking system and ward off inflationary pressures stemming from high fiscal spending, the implementation of a new minimum wage, and injection of funds into the bank system through the purchase of non-performing loans through bonds issued by asset management corporation of Nigeria (AMCON). The monetary policy rate, which was 6.25 present in September 2010, increased six times in 2011, to reach 12 percent in December, 2011. Similarly, the cash reserve ratio was increased steadily from 1 percent in March to 8 percent in December 2011. With these measures, also inflation fell from 13.7 percent in 2010 to 10.2 percent at the end of 2011 and is expected to decline to 10.1 percent in 2012 and 8.4 percent in 2013 due to the central bank monetary policy tightening and easing food prices. (see, CBN communiqué No. 78 (2011)). With these developments, inflation inertia has been curtailed and high inflation may be a thing of the past, if sustained. Another strategies put in place to stabilize the economy was privatization
1.2 STATEMENT OF PROBLEM
The adverse effects of unemployment and inflation on economic growth has attracted the 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 various macroeconomic policies by government have been unable to achieve sustained price stability, reduction in unemployment and sustained growth cannot be achieved. The poor state of the economy has confirmed the need to manage the economy effectively. The essence of macroeconomic management underlines the rationale for the existence of government as a vital economic agent. However, it appears that government intervention has not been able to cure the ills in the Nigerian economy.
1.3 OBJECTIVES OF THE STUDY
The broad objective of this study is to examine the relationship that exists between inflation, unemployment and the economic growth of Nigeria. This objective is categorized into the following specific objectives:
1.4 SIGNFICANCE OF STUDY
1.5 RESEARCH HYPOTHESIS
H0: There is no relationship between inflationrate and the economic growth in Nigeria.
H0: There is no relationship between unemployment and the economic growth in Nigeria.
1.6 SCOPE OF THE STUDY
The economy is a large component with lot of diverse and sometimes complex parts. However, this study will only focus on some macroeconomic variables such as inflation rate and unemployment rate. Data collected for the purpose of the study includes records from the year 1980 through 2016 and shall be collected from the central bank database.