Abstract
Research Purpose: With Nigeria facing persistent unemployment challenges, understanding the impact of fiscal policy is crucial for informed policy formulation. This study investigates the long-run effects of various fiscal policy instruments on unemployment in Nigeria.
Methodology: The study utilises annual time series data from 1980 to 2021 sourced from the Central Bank of Nigeria. An Autoregressive Distributed Lag (ARDL) approach is employed to analyse the relationship between unemployment (dependent variable) and government consumption expenditure, gross fixed capital formation, exchange rate, and interest rate (explanatory variables). Stationarity is tested using the Augmented Dickey Fuller (ADF) test, while Johansen co-integration tests determine short- and long-run relationships.
Findings: Long-run analysis reveals a positive relationship between government consumption expenditure and exchange rate with unemployment. Conversely, interest rate demonstrates a negative long-run association with unemployment.
Conclusion: Fiscal policy significantly influences unemployment in Nigeria. While certain instruments positively impact unemployment, others can contribute to its reduction.
Recommendations: The study recommends increased government capital expenditure on infrastructure to stimulate national income and employment. Tax policies should be conducive to investment and economic activity. Combating corruption is crucial to prevent the diversion of public funds, ensuring their effective utilisation for economic growth and job creation. Finally, fiscal policies should be implemented alongside complementary monetary policies for optimal economic performance.
Key words: Fiscal policy, Unemployment rate, Nigeria.
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