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Does Okun’s Law Explain the Relationship between Economic Growth and Unemployment in Nigeria?

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  • Dankumo, Ali Madina

    (Department of Economics and Development Studies Federal University of Kashere P.M.B 0182, Gombe Gombe State of Nigeria)

  • Ishak, Suryati

    (Faculty of Economics and Management Universiti Putra Malaysia 43400 Serdang, Malaysia)

  • Oluwaseyi, Zubair Azeem

    (Faculty of Economics and Management Universiti Putra Malaysia 43400 Serdang, Malaysia)

  • Onisanwa, Idowu Daniel

    (Department of Economics and Development Studies Federal University of Kashere, P.M.B 0182, Gombe, Gombe State of Nigeria)

Abstract

The issue of unemployment remains the fulcrum of any economic policy because of its attendant effects such as low GDP, increase social ills, etc. Thus, this paper attempts to verify if Okun’s law holds in Nigeria by investigating the dynamic effect of unemployment on economic growth using time-series data for Nigeria covering 22 years from 1996-2017. In examining this matter, this study uses an autoregressive distributed lag (ARDL) approach. The paper sheds light on whether Okun’s law can be applicable outside the US economy to explain the relationship between unemployment and economic growth, with the inclusion of some governance indicators, namely corruption and political instability. The findings revealed that there is a long-run association between economic growth, unemployment, corruption, and political instability. However, unemployment and corruption do not impact economic growth, but only political stability was found to be negatively significant. This outcome implies that in Nigeria, Okun’s law does not explain the connection between unemployment and economic growth. This papaer recommends the government to create employment opportunities through its increase in expenditures in the form of subsidies and loans with less interest, thereby reducing unemployment, increasing productivity, and lastly increasing the growth of the economy.

Suggested Citation

  • Dankumo, Ali Madina & Ishak, Suryati & Oluwaseyi, Zubair Azeem & Onisanwa, Idowu Daniel, 2019. "Does Okun’s Law Explain the Relationship between Economic Growth and Unemployment in Nigeria?," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 53(3), pages 153-161.
    • Handle: RePEc:ukm:jlekon:v:53:y:2019:i:3:p:153-161
    DOI: http://dx.doi.org/10.17576/JEM-2019-5303-12
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    References listed on IDEAS

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    1. Olawunmi Omitogun & Adedayo Emmanuel Longe, 2017. "Unemployment and Economic Growth in Nigeria in the 21st Century: VAR Approach," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 13(5), pages 155-168, OCTOBER.
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    3. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
    4. Paresh Kumar Narayan, 2005. "The saving and investment nexus for China: evidence from cointegration tests," Applied Economics, Taylor & Francis Journals, vol. 37(17), pages 1979-1990.
    5. Nikolaos Dritsakis & Pavlos Stamatiou, 2016. "The Effects of Unemployment on Economic Growth in Greece. An ARDL Bound Test Approach," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 19(62), pages 53-72, December.
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