ABSTRACT
This study empirically examined the impact of fiscal fundamental on unemployment in
Nigeria. The study employed the Annual data on government expenditure, government revenue,
interest rate, and public debt from Central Bank of Nigeria Statistical Bulletin covering the
period of 1981-2015. The result of this study shows that government expenditure (GX) and
interest rate (IR) exerts significant positive impact on unemployment rate in Nigeria where
government revenue (GR) and public debt (PDT) has insignificant positive impact on
unemployment rate in Nigeria. The result equally shows that unemployment granger cause
government expenditure and government revenue in Nigeria. It was concluded that fiscal
fundamental does not ganger cause the rate of unemployment in the country, thus, the pass
values of government expenditure, government revenue and public debt does not significantly
influence the rate of unemployment in the country. Consequently, the study recommends that
government should refocus expenditure in the country to areas such as development of
infrastructural facilities so as to increase the rate of productivity in the country and bate
economic growth necessary for increase employment of labour. Government should also redefine
its priority to include harnessing of other courses of revenue of the country, such as massive
investment in the exportable agricultural products in the country. In contrast, government should
also design framework that will ensure effective implementation and completion of project and
programmes in the country so as to ensure that objectives of each project and programme is
achieved most effectively and efficiently.
Keyword: Government Expenditure, Government Revenue, Interest Rate, Public Debt.
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TABLE OF CONTENT
TITLE PAGE i
CERTIFICATION ii
DEDICATION iii
ACKNOWLEDGEMENT iv
ABSTRACT vi
TABLE OF CONTENT vii
LIST OF FIGURES x
LIST OF TABLES xi
CHAPTER ONE: INTRODUCTION
1.1 BACKGROUND OF THE STUDY 1
1.2 STATEMENT OF THE PROBLEM 3
1.3 OBJECTIVE OF THE STUDY 5
1.4 HYPOTHESIS TESTING 5
1.5 SIGNIFICANCE OF THE STUDY 5
1.6 SCOPE OF THE STUDY 6
1.7 DEFINITION OF TERMS 6
1.8 ORGANIZATION OF THE STUDY 7
CHAPTER TWO: LITERATURE REVIEW
2.0 INTRODUCTION 8
2.1 CONCEPTUAL ISSUES 8
2.1.1 UNEMPLOYMENT 8
2.1.1.1 UNDEREMPLOYMENT 9
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2.1.1.2 TYPES OF UNEMPLOYMENT 10
2.1.2 FISCAL POLICY 11
2.1.2.1 TOOLS OF FISCAL POLICY 12
2.2 LITERATURE REVIEW 13
2.3 THEORETICAL FRAMEWORK 17
2.3.1 THEORIES OF FISCAL POLICY 17
2.3.2 THEORIES OF UNEMPLOYMENT 19
2.3.2.1 THE KEYNESIAN UNEMPLOYMENT THEORY 19
2.3.2.2 THE CLASSICAL THEORY OF UNEMPLOYMENT 21
2.3.2.3 MARXIST THEORY OF UNEMPLOYMENT 21
2.3.2.4 THE SEARCH THEORY OF UNEMPLOYMENT 22
2.3.2.5 THE THEORY OF REAL BUSINESS CYCLES 24
2.4 EMPIRICAL EVIDENCE 24
CHAPTER THREE: RESEARCH METHODOLOGY
3.0 INTRODUCTION 31
3.1 ESTIMATION TECHNIQUES 31
3.2 SOURCES OF DATA 33
CHAPTER FOUR: RESULT AND DISCUSION
4.1 INTRODUCTION 34
4.2 CORRELATION ANALYSIS 34
4.3 REGRESSION ANALYSIS 35
4.4 POST ESTIMATION TEST 35
4.5 GRANGER CAUSALITY ANALYSIS 38
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4.6 DISCUSSION 38
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATION
5.1 SUMMARY OF FINDINGS 40
5.2 CONCLUSION 40
5.3 RECOMMENDATIONS 41
REFERENCES 42
APPENDIX 48
x
LIST OF FIGURES
Figures Titles Page
Figures 4.1 Normality Test 38
xi
LIST OF TABLES
Tables Titles Page
Table 4.1 Correlation Matrix 34
Table 4.2 Regression Estimation Result 35
Table 4.3 Post Estimation Test Result 36
Table 4.4 Pairwise Granger Causality Test Result 39
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CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Nigerian government over the years had reliably set out on different macroeconomic
policy options in order to straight the economy on the way of growth and development. One of
the policy options the government frequently utilized is the fiscal policy. Fiscal policy alludes to
a deliberate effort by the government to operate its expenditure, taxes and public debts to
complete macroeconomic goals of the governments among which are economic growth. Several
factors have militated against the development and growth of the economy which include high
rate of unemployment, inflation, poor infrastructures and a host of other issues which required
the regular government mediation in the management of the economy through its fiscal policies.
Fiscal policy is indisputably one of the profoundly admired policies utilized by the government
to monitor and accomplish ‘macroeconomic stability of the economy of most developing nations
(Siyan and Debayo, 2005).
Fiscal policy thus is the means by which a government modifies its level of spending in
order to monitor and control a country’s economy. It is utilized alongside the monetary policy
which the central bank uses to control money supply in a country. These two approaches (fiscal
policy and monetary policy) are utilized to accomplish macroeconomic objectives in a country.
In other words, fiscal policy is a key economic stabilization weapon that includes measure taken
to regulate and control the volume, cost and accessibility and in addition heading of money in an
economy to accomplish some predetermined macroeconomic policy objective and to offset
undesirable trends in the Nigerian economy (Gbosi, 1998). Consequently, they cannot be left to
the market forces of demand and supply and in addition different instruments of stabilization, for
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example, monetary and exchange rate policies among others are used to offset problems
identified such as inflation and high rate of unemployment (Ndiyo and Udah, 2003).
One of the objectives of a modern government is to moderate unemployment and make
the environment favorable for investors to put resources into other to make work or create job
and ensure price stability in the economy through compelling and appropriate accomplishment of
fiscal policies. Fiscal policy is the government’s management of the economy through the
control of its wage and spending energy to complete some pursued macroeconomic goals
amongst which are price stability, negligible unemployment rate and economic growth
(Ozurumba, 2012). Fiscal policy is the methods by which a government adjusts its level of
spending to curtain and impact a country’s economy. It is utilized alongside the monetary policy, which the central bank utilized to influence money supply in a country. These two policies (fiscal
policy and monetary policy) are utilized to accomplish macroeconomic objectives in a country.
These objectives incorporate price stability, full employment, reduction of poverty levels, high
and sustainable economic growth, favorable balance of payment, and reduction country’s debt. Unemployment on the other hand is one of the major fundamental development
challenges confronting Nigeria right now. Investigation have demonstrated that unemployment
was high in the 1980s, yet the accessible reports from different local and universal bodies, and
the glaring proof of joblessness in this decades are clear signs that there was no time in Nigeria’s
checkered history where unemployment is as serious as now. One cannot generally presume that
the governments at one level or the other have not done anything at one time or the other, to
lessen unemployment in Nigeria. For example, the formation of National Directorate of
Employment (NDE) and its aptitudes acquisition programs, NAPEP, PAP, the SURE- P,YOUWIN, just to specify a couple, are a portion of the different arbitration components aimed
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at ensuring economic growth that is rich with job creation opportunities (Aganga, 2010 and
Ogunmade, 2013).
Unemployment has been prescribed as one of the serious obstacles to social advance.
Aside from representing a massive waste of a country’s labor assets, it creates welfare
misfortune as far as lower output in this manner prompting to lower income and well-being
(Raheem, 1993). Consequently, over the years unemployment has increased tremendously in
Nigeria. It is a social and economic malady that has eaten deep into the Nigerian economy. The
effect is extremely disastrous on the government and her citizens. It decreases the way of life of
individuals from the society. It has been confirm that the instability, revolt and psychological
oppression assaulting the North East region of Nigeria and also militancy, abducting, sea piracy
and pipe line vandalism in the Niger Delta are as a result of high rate of unemployment in the
nation (Egbulonu and Amadi 2016). Unemployment alludes to the condition and degree of
joblessness within an economy, and is measured as far as the unemployment rate, which is the
number of unemployed people who are ready and capable to work divided by the total civilian
labor force. Notably, Gbosi (1997) denote that unemployment is a condition in which individuals who
are willing to work at the prevailing wage rate are incompetent to find jobs. Unemployment is as
a consequence of the inability to cultivate and exploit the nations manpower resources
effectively particularly in the rural sector (Fadayami, 1992; Osimubi, 2006).
1.2 Statement of the Problem
A critical examination of the data on unemployment in Nigeria between the vicinity of
1960 and to mid-1980 shows the modest level of unemployment. This was because Nigeria, as at
that time was in economic boom, hence making unemployment something that no one could
dream about. However, today unemployment has turned out to be severe to the point that no one
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jumps at the chance to grip it. Past governments in their own particular limits have been setting
out on different strategies to control inflation and lessen the level of unemployment in the
country. Though, government efforts have not yielded the required outcomes as these issues are
known to skyrocketing instead of plummeting. Over the years, the Nigerian Government had embraced different fiscal policy measures to
decrease the issue of unemployment, yet the issue has been on the up surge. Regardless the lofty
place of fiscal policy in the management of the economy, the Nigerian economy is yet to come
on the path of sound growth and development. For instance, scholars like Agiobenebo (2003),
Gbosi (2002) and Okona (1997) demonstrate that the economy is still hitched by chronic
unemployment, rising rate of inflation, reliance on outside innovation (foreign technology), monoculture foreign exchange earnings from unrefined petroleum (crude oil), and more. Moreover, stagnating revenue mobilization specifically and some upward movements in
expenditures led to a reversal of the fiscal stabilization procedure since the second half of the
Nineties. An enhanced fiscal performance amid 2003-2004 induced by control of the non- planned expenditures and supported by high revenue mobilization on the back of bright genuine
activity made ready for re-established commitment towards fiscal alliance in Nigeria. The
present study is aimed at further examination of how fiscal fundamentals can contribute to
unemployment in Nigeria. In achieving the aforementioned objectives the study seeks to provide
answers to the following questions:
1. What are the effects of federal government expenditure on rate of unemployment?
2. Is there any trade-off relationship between unemployment and inflation in Nigeria?
3. Do fiscal fundamentals causes unemployment in Nigeria or is there any causality between
fiscal fundamentals and unemployment in Nigeria?
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1.3 Objectives of the Study
The fundamental target of the study is to evaluate the impact of fiscal fundamental via
(government revenue, public debt, interest rate, and government expenditure) on
unemployment in Nigeria from 1981-2015. The specific objectives of this study are:
1. To determine the effect of federal government expenditure on the rate of unemployment
in Nigeria.
2. To ascertain the causal relation between fiscal policy and rate of unemployment in
Nigeria.
3. To analyze the trend of fiscal policy instruments in Nigeria.
1.4 Hypotheses Testing
The hypotheses to be tested in this research work are:
1 H0: That the fiscal policy instrument do not have significant effect on
unemployment in Nigeria.
H1: That the fiscal policy instrument have significant effect on
unemployment in Nigeria.
2 Ho: There is no significant relationship between federal expenditure and
unemployment.
Hi: There is significant relation between federal expenditure and
unemployment.
Where Ho: Null hypothesis
Hi: Alternative hypothesis
1.5 Significance of the Study
This research work is aimed at showing the impact of fiscal fundamental on
unemployment in Nigeria from 1981-2015. Specifically, the study will help in restructuring the
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apparatuses of fiscal policy, such as tax system and federal government capital expenditure in
Nigeria with a view to broaden the economy, lessen the current high inflation rate and
furthermore raising the living standard. The results of this research will also assist monetary
authorities in measuring the performance of the fiscal policy in Nigeria, mostly in terms of how
its impact on unemployment and how the policy can be used to influence the Nigeria economy at
large.
1.6 Scope of the Study
This research work intends to study the impact of fiscal fundamental on unemployment
within the Nigeria. The study will cover the time period 1981-2015 (a period of 35 years); this is
to confirm updated information. The range was selected based on data availability and to have
sufficient perception for a significant investigation.
1.7 Definition of Terms
Fiscal Policy: Fiscal policy as indicated by Reem (2009) is characterized as the methods by
which a government adjusts its levels of spending in order to monitor and influence a country’s
economy.
Government Expenditure: According to Anyanwu (1997) Government expenditure can simply
be viewed as the retention of assets by public sector. Here, the public sector broadly branded is
that bit of the national economy in which economic and non-economic activities are under the
control and general way of the state. It can likewise be viewed as the costs government incur for
its own particular support, additionally for the general public and the economy as a whole (Bhati,
1976).
Taxation: Taxes are compulsory transfer/payments of money from private individuals,
institutions, organizations and groups of government. As indicated by Powell (1993), tax can be
well-defined as a compulsory levy for its outflow. It could equally allude to impose on an
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individual’s income by the government which is utilized to give social amenities to the general
public. It might be levied on wealth, income, or as additional charge on costs, tax assessment,
being a standout amongst the best instruments of fiscal policy is forced to diminish private
consumption, increment speculation (increase investment), exchange asset (transfer resource) to
the government for economic surplus.
Public Debt: According to Eze (2010) Public debt is a term used to indicate commitments of
government to pay expressed aggregates of money to debt holders at some future time.
Unemployment: Beggs (2012) denoted that unemployment is a circumstance in which an
individual in an economy is searching for a job and cannot discover one. Pettinger (2010)
considers unemployment to be a circumstance where somebody of working age is not ready to
get. Job but rather might want to be in full time employment.
1.8 Organization of the Study
Following this introduction, Chapter two will review both the theoretical and empirical
literature relating to the relationship between fiscal policy and unemployment in Nigeria.
Chapter three shall discuss the methodology and the sources of the data to be utilized in this
study. Chapter four shall estimate the ordinary least square estimation technique and interpret the
outcomes. Findings, conclusion, and policy recommendations shall be illustrated in Chapter five.
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