Fiscal Policy and Labour Absorption Rate in Nigeria (1980 - 2000)

Abstract

This study investigates the kind of causal relationship that exists between fiscal variables and unemployment in Nigeria. The study specifically examined the nature and direction of causality between government expenditure and fiscal deficit on one hand and unemployment rate on the other. The study relied on annual time series data from 1980 to 2000 on Nigerian economy. The cointegration and error correction technique was adopted to examine the characteristics of the data and to draw policy conclusion. This result showed that though, there exist long run relationship between the fiscal policy variables and unemployment. However, the results showed that the causality between fiscal policy variables and unemployment is undirectional and runs from unemployment to fiscal policy. This finding may suggest that fiscal imbalance is a consequence not a cause of unemployment in Nigeria.