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European Xtramile Centre of African Studies
(EXCAS)
EXCAS Working Paper
WP/19/079
Revisiting the Trade and Unemployment Nexus: Empirical Evidence from the
Nigerian Economy
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Forthcoming: Journal of Public Affairs
Stephen T. Onifade
Department of Economics, Selçuk University Konya,Turkey.
Email:
stephentaiwo.onifade@lisansustu.selcuk.edu.tr
Ahmet Ay
Department of Economics, Selçuk University Konya, Turkey.
Email: ahmetay@selcuk.edu.tr
Simplice A. Asongu
African Governance and Development Institute,
P. O. Box 8413, Yaoundé, Cameroon.
Emails:
asongusimplice@yahoo.com
/ asongus@afridev.org
Festus V. Bekun
Faculty of Economics Administrative and Social sciences,
Istanbul Gelisim University, Istanbul, Turkey.
Email:
fbekun@gelisim.edu.tr
1 This working paper also appears in the Development Bank of Nigeria Working Paper Series.
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2019 European Xtramile Centre of African Studies WP/19/079
Research Department
Revisiting the Trade and Unemployment Nexus: Empirical Evidence from the Nigerian
Economy
Stephen T. Onifade, Ahmet Ay, Simplice A. Asongu & Festus V. Bekun
January 2019
Abstract
The recent exacerbation of unemployment crisis in Nigeria stands to be a serious threat to both
socio-economic stability and progress of the country just as the report from the nation’s bureau of
statistics shows that at least over 8.5 million people had no gainful employment at all as at the
last quarter of the year 2017. It is on the above premise, that the present study explores the link
between trade and unemployment for the case of Nigeria with the intention of exploring how the
unemployment crisis has been impacted within the dynamics of the country’s trade performance.
The empirical evidence shows that the nation’s terms of trade were insignificant to
unemployment rate while trade openness and domestic investment, on the other hand, have
significant opposing impacts on unemployment in Nigeria over the period of the study. Further
breakdowns from the empirical analysis also revealed that the Philips curves proposition is valid
within the Nigerian economic context while the evidences for the validity of Okun’s law only
exist in the short-run scenario. Based on the empirical results, we recommend that concerted
effort should be geared toward stimulating domestic investment by providing adequate financial
and infrastructural facilities that will promote ease of doing business while utmost precautions are
taken to ensure that unemployment crisis is not exacerbated when combating inflation in the
economy in the wake of dynamic trade relations.
Keywords: Nigeria; Unemployment; Trade; Phillips Curves; Okun’s law.
JEL Classification: E23; F21; F30; O16; O55
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1. Introduction
The benefits of trade to economic growth and development have been highlighted in a bulk of
literature and these benefits have been upheld by empirical evidences that are repleted in a great
number of studies on the trade discourse
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. However one of the big questions that is still open to
extensive discussion is whether free trade has helped to create more jobs or on the contrary if it is
detrimental to job creation, going by the rising unemployment rate and job losses that have cut
across various segments of the labor force in some countries despite the continued decline in
unemployment rate on the global level in the wake of changing trade dynamics and supports for
free trade? In 2018, the global unemployment rate stood at 5% with over 170 million people
estimated to be unemployed with another 140 million people falling under the category of the
underutilized labor in the same year (ILO, 2019).
Since unemployment is a major social-economic crisis ravaging many economies, its rate has
turned out to be one of the most widely utilized indicators in labor analysis. However, the
parameters for measuring this rate often vary from one nation to another (NBS, 2018). The
peculiarity of each nation vis-à-vis the components and structure of labor market combine with
factors within the political and economic environments often affect the general employment
situations and working conditions thereby influencing what unemployment rate would look like.
While some people within the official active labor force in a country may be complaining about
being forced to work below their full capacity, there may be some other categories whose
complaints might be hinged on dissatisfactions with their current jobs even if they are engaged in
full a time basis. In other words, even when there is no ideal well-functioning labor market,
choosing to be unemployed may not be an ideal option for a vast majority of people who are
ready to engage in any kind of jobs even if they are low paying jobs with little or no social
benefits in order to earn a living and escape from worrisome poverty conditions. For instance, a
sizeable proportion of the employed population in Africa is working in arrangements
characterized by insecurity, low pay and lack of social protection (ILO, 2019).
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The study of Sachs and Warner (1995) revealed that economic reformations that give room to more openness can
pave ways for better economic growth performances especially in developing countries although their work has
attracted various criticisms from many other studies especially that of Rodríguez and Rodrik (2001) on the ground of
the appropriateness of the measurement of openness and general issues that border on endogeneity problems.
However, studies like that of Irwin and Tervio (2002) appear to have corroborated the findings of Sachs and Warner
(1995) as they noted that nations that have larger trade to GDP ratios have higher incomes even after they have
controlled for trade endogeneity in their studies using data spanning from the pre-World War 1 to Post World War.
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In some other circumstances, there may be groups of people who by the reasons of a couple of
factors have nothing at all to do as a legitimate job. They may include the categories of first-time
school leavers and those who have lost their jobs whether recently or in a much longer period in
the time past and have been unable to secure any job over a period of time. Available insights
from the Nigerian Bureau of Statistics have shown that the challenges of dealing with
unemployment in Nigeria especially with respect to the proportion of people in the latter case has
exasperated in recent times. As of the last quarter of the year 2017, over 8.5 million people were
reported to have nothing to do as a legitimate means of livelihood (NBS, 2018).
Can trade ameliorate unemployment challenges in the Nigerian economy or can we say the
dynamics of the international tradehave contributed as a panacea to the unemployment crisis that
is ravaging the Nigerian economy? Fugazza et al. (2014) noted that the impacts of trade on
unemployment are ambiguous and in such a case, there is a need to look at empirical evidence
from available data.Thus, this present study revisits the unemployment and trade nexus for the
case of Nigeria where there is little or no detailed empirical study using the adopted methodology
for the current study in a relevant multivariate setting. The extant literature (Dritsaki & Dritsaki,
2012; Manu et al. 2018) which is conducted in a bivariate framework is argued to be flawed with
specification bias, considering country’s peculiarities. However, the current study added more
key macroeconomic indicators like inflation, terms of trade and economic growth to circumvent
the issue of omitted variable bias in order to capture more dynamics in the Nigeria context,
beyond the traditional investigation of the unemployment-inflation nexus. This is pertinent,
bearing in mind that there is an urgent need to revisit the unemployment menace of which the
Nigerian economy is plagued with huge unemployment and terms of trade statistics. This study
also simultaneously account for both short and long-run dynamic among the outlined variables to
arm policymakers and stakeholders alike. Conclusively, inthis study, we want to take a critical
look at the unemployment menace in the Nigerian economy with an empirical lens within the
context of the nation’s trade performances thereby creating an extension to the discussion on the
unemployment trade literature nexus from the Nigerian economy.
The remainder of this study proceeds thus. Section 2 focuses on a synopsis of unemployment in
Nigeria. Section 3 details the related literature on the theme while section 4 renders the data and
methodological procedure. Finally, section 5 concludes the study and presents policy directions.
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2. Unemployment and Trade Growth in Nigeria
The component of labor statistics and the exact meaning of unemployment often vary from one
country to another depending on certain factors out of which political and social-economic
factors like religion and culture play important roles to a large extent. The term unemployment in
the Nigerian context captures people in the labor force age range (that is officially recognized
asage 15 to 64) who are ready for work or are searching for jobs but cannot secure any job at a
given point in time (NBS, 2018). By extension, we can say that people who are below the age of
14 and those who are above the age of 64 are not to be included in the unemployment estimate as
they are not part of the officially recognized active labor force in the country. There are some
other groups of people who are disenfranchised from working by the reason of physical disability
and those who voluntarily decided not to engage in official paid jobs such as full housewives are
also excluded from the unemployment estimates. In the Nigerian context, the standard minimum
working hours to be regarded as being fully-employed is 40 hours per week while those who
cannot secure a job that will engage them to work up to at least 20 hours weekly and those who
cannot find any job to do at all are jointly categorized as the unemployed. Furthermore, there are
people who could secure a job that can only engage them for less than 40 hours but more than 20
hours per week and this proportion of the labor force is categorized as the underemployed.
[Please Insert Table 1 Here]
From Table 1 above, a greater proportion of people who can be viewed as unemployed are of
those in the underemployed categories. The labor force population has been on the increase over
the years. As of 2017, the labor force had grown to over 86.5 million from its previous value of
approximate 65.2 million in 2010 representing an average growthof about 31.24% within seven
years. In Nigeria, both unemployment and underemployment figures have increased significantly
over the years and much of these changes have become more noticeable in the years after the
global economic crisis of 2008. In 2010, the official labor force stood at 65.17 million and16.3%
of the labor force which representsa total of 10.64 million people was reported to be
underemployed. About 5.1% of the labor force which represents 3.31 million people could be
regarded as unemployed and out of them were 2.04 million people whocould not even get a job
that could engage them for at least 20 hours a week and the other 1.26 million people had nothing
