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OBU EWERE MICHAEL SSC0503221
DEPARTMENT OF ECONOMICS AND STATISTICS FACULTY OF SOCIAL SCIENCES UNIVERSITY OF BENIN EDO STATE
IMPACT OF FOREIGN DIRECT INVESTMENT ON UNEMPLOYMENT IN NIGERIA (1980-2007)
OBU EWERE MICHAEL SSC0503221
A RESEARCH WORK PRESENTED TO THE DEPARTMENT OF ECONOMICS AND STATISTICS, FACULTY OF SOCIAL SCIENCES, UNIVERSITY OF BENIN, EDO STATE; IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF A BACHELOR OF SCIENCE DEGREE IN ECONOMICS AND STATISTICS UNIVERSITY OF BENIN,
CERTIFICATION We the was carried undersigned certify that this research work out by OBU EWERE MICHAEL of the
Department of Economics and Statistics, University of Benin, Edo State. And it is adjudged adequate in scope and quality for the purpose of a partial fulfillment for the award of a Bachelor of Science (B.Sc) Degree in Economics and Statistics.
_______________________ Dr. Anthony Monye-Emina Project Supervisor ________________________ Dr. Mrs. E. I. Okojie Project Coordinator
_______________________ Dr. O. T. Ekanem Head of Department
DEDICATION This research work is dedicated to my late mother. Mrs. in memory of her motherly love. care and guidance while she was alive. iv . Christiana Onyero Obu.
Shola. Kenneth. v . Kanabe Imhoesi. Fred. Glory Airiavbere for their love. Tina. Further. for his prayers. prayers and financial support. Abdu and all others too numerous to mention. my warmest appreciation goes to my brothers and sisters viz.ACKNOWLEDGEMENT I wish to seize this opportunity to thank my Supervisor Dr. I express my warmest gratitude to my father Sir Michael Arinze Obu. To be continually remembered are my friends Celestine Asumuga. moral and financial support. Also. Frank. Anthony Monye-Emina for his guidance and tutelage in the course of writing this project. Onyeka and Mrs. Cornelius Chinedu. Collins. Vivian Egbudu. Kingsley. Mrs.
courage and Peter Egbudu and Atole Oriakhi. Hassan. Prof. I thank God Almighty for his awesome goodness in granting me the strength. I am indebted to Rev. Mon. Ogbemudia as well as Engrs. Rapheal Obu and Mr. Mogbolu and others for their Chris Idoye for their support determination not only in the course of writing this project but also. Airiavbere. Dr. & Mrs. Not left out are my Uncles Rev. Rev. Egnr. Mrs. for leading me through out the period of my study. Okoh and Okojie (Mrs.) as well as Drs. Above all else. Mr. Rev. Father MarioDebie. For their prayers. Nwadiani. Oke Akokotu and others.My profound appreciation also goes to my lecturers Prof. and encouragement. vi . Fidelis Nwadiani. Edo. and Mr. tutelage. Obadan.
6 Trend in Unemployment in Nigeria 2.1 1.7 Foreign Direct Investment and Unemployment: vii 1 4 5 7 7 8 9 10 13 19 22 26 32 .TABLE OF CONTENT Title Certification Dedication Acknowledgement Abstract Chapters i ii iii iv viii CHAPTER ONE: INTRODUCTION 1.3 1.4 Unemployment‟s Conceptual Issues 2.1 Foreign Direct Investments: Conceptual Issues 2.7 Background to the Study Statement of the Problem Significance of the Study Objectives of the Study Hypotheses of the Study Scope and Methodology Limitation of the Study CHAPTER TWO: LITERATURE REVIEW 2.2 1.5 Determinants of Unemployment 2.2 Determinants of Foreign Direct Investments Flows 2.3 Trend in Foreign Direct Investment Flows in Nigeria 2.6 1.4 1.5 1.
CHAPTER THREE: THEORETICAL FRAMEWORK 3.1 Sources of Data and Method of Analyses 3.2 Model Specification CHAPTER FOUR: EMPIRICAL ANALYSES 4.1 Presentation of Empirical Results 4.2 Discussion of Empirical Results 41 42 37 37
CHAPTER FIVE: SUMMARY, RECOMMEDATION AND CONCLUSION 5.1 Summary of Findings 5.2 Recommendations 5.3 Conclusions Bibliography Appendix 46 47 49 51
ABSTRACT This study investigated the Impact of foreign direct
investment on unemployment in Nigeria from the period 1980 to 2007. The study was carried out empirically using the Ordinary Least Squares method of regression analysis; alongside other statistical tests. Empirical results obtained revealed that government expenditure is a poor determinant of
unemployment, while foreign direct investment inflow is the most germane determinant of unemployment in Nigeria. Hence to reduce the spat of unemployment in Nigeria, policy emphases should be centered on attracting greater inflows of foreign direct investment.
CHAPTER ONE INTRODUCTION
1.1 BACKGROUND TO THE STUDY The world economy is growing on the strength of globalization. One of the most salient features of
globalization drive is the conscious encouragement of crossborder investments, and especially Thus by many trans-national countries and
continents (especially developing) now see the attraction of foreign direct investment as an important element in their strategy for economic development, essentially because it is seen as an amalgamation of capital, technology, marketing and management (Sjoholm, 1999). Foreign direct investment is an investment made to acquire a lasting management interest in a business enterprise operating in a country other than that of the investor, defined according to residency (World Bank, 1996).
Furthermore. 2 . In corporate governance.Such investments may take the form of either “Greenfield” investment (also called “mortar and brick” investments) or merger and acquisition which entails the acquisition of existing interest rather than new investment. ownership of at least 10% of the ordinary shares or voting stock is the criterion for the existence of a direct investment relationship. but also reinvested earnings and loans similar capital flows or transfers between parent companies and their affiliates. foreign direct investment comprises while outward investment those projects owned abroad. while ownership of less than 10% is recorded as portfolio investment. foreign direct investment comprises not only mergers and acquisitions and new and investments. It has been posited that a country‟s inward foreign direct investment position is made up of the hosted foreign direct investment projects.
2003). was to increase the available capital inflows through a combination of reforms. especially in limiting 3 . 2003). Africa is in dire need of foreign direct inflows owing to its acknowledged advantages. Finally. potential need. in Nigeria the level of foreign direct investment attracted overtime is mediocre (Asiedu.One of the strongest strengths of foreign direct investment arises from the positive externalities if generates from the positive externalities it generates from forward and backward linkages or through industrial acceleration as being currently experienced in the South and East Asia.as compared with her resource base. Hence one of the pillars on which the New partnership for Africa‟s Development (NEPAD) was launched. This is evident because it is less volatile and resilient to perturbations in the economy. resource mobilization and a conducive environment for foreign direct investment (funke and Nsouli.
2 STATEMENT OF THE PROBLEM Essentially. One of the fundamental problems observed overtime is the high cost of running businesses owning to poor 4 as well as poor outcomes in generating . dire need of necessary capital and intermediate goods with which to fast-track production. since the aftermath of the oil glut in 1982.unemployment growth rate. there has been an enormous need for foreign direct investment in mitigating the constraints posed by shortages of foreign exchange earnings. 1. It has been a constant cause for worry that despite the myriad of investment incentives offered overtime in Nigeria. . there has been a continual low inflow of foreign direct investment employment. and in relation to the policy framework initiated in the past. growth in employment and the attainment of the targeted growth rate.
the expectant impact of foreign direct investment in generating jobs in Nigeria seems elusive and unattainable. Other identified factors include: the continual growth in labour force. Finally. there is usually an enormous quest for foreign direct investment because of its 5 .infrastructure. in view of the current global economic crisis and dwindling flow of foreign direct investment. the variability in policy frameworks thus. leading to low confidence in investment incentives. hence facilitating the use of foreign technology in place of human labour. 1. the inequitable spread or skewness of foreign direct investment largely towards the extractive and capital intensive industries.3 SIGNIFICANCE OF THE STUDY In any developing economy. All this have cumulatively contributed to poor outcomes of foreign direct investment in enhancing employment generation in Nigeria.
forward and backward linkages in enhancing economic growth as well as reducing unemployment.vis unemployment in Nigeria. the trend and outcomes of foreign direct investment via -a. The need to curtail the growing pace of unemployment in Nigeria via foreign direct investment has been paramount. especially the agricultural sector. Finally. as a means of revamping the declining inflows of foreign direct investment. 6 . it emphasizes the spread of foreign direct investment into non-oil sectors. as articulated in the Structural Adjustment Programme in 1986. hence generating employment in all sectors of the economy. Thus it stresses the need to limit infrastructural barriers and variabilility in policy frameworks. In examining. this research work assesses the performance of past policy frameworks and the impact of foreign direct investment inflows on unemployment in Nigeria overtime.
Null hypothesis: HO: Foreign direct investment is not negatively associated with unemployment in Nigeria. The specific objectives include to: i. 7 . examine the trend in foreign direct investment flows to Nigeria. HYPOTHESES OF THE STUDY The hypotheses that guided this study are: i. ii. determine trend in unemployment in Nigeria. iii.5 make recommendations on appropriate policy . estimate the relationship between foreign direct direct investment on unemployment in investment and unemployment in Nigeria and iv. 1.1.4 OBJECTIVES OF THE STUDY The general objective of this study is to determine the impact of foreign Nigeria.
6 SCOPE AND METHODOLOGY This study covers the period 1980 to 2007. The lifting of restrictive laws inhibiting foreign participation especially through the institution of Structural Adjustment Programme in 1986.ii. there had been an enormous need to spread foreign direct investment inflow 8 . Alternative hypothesis:H1: Foreign direct investment is negatively associated with unemployment in Nigeria. viz: The oil glut of the 1980s which had precipitated a drop in revenue and massive loss of jobs in Nigeria and. 1. Essentially the earlier part of the period was marked by a resurgence in the need for foreign direct investment particularly for two reasons. In the latter period on the other hand.
into non-extractive sectors as a means of limiting the growth in unemployment.7 LIMITATION OF THE STUDY This study was greatly constrained by the short period of time required to carry out this research work. Finally the Ordinary Least Squares regression technique was used or adopted in the empirical analysis of this research work. 9 . The sources of data for this study would be secondary sources. unbiased estimator property among the class of linear estimators. linear. This criterion was adopted because it has the best. This is in addition to the requirements of other course work required by the programme. such as the Central Bank of Nigeria‟s publications like the statistical bulletin. 1.
posits that against the background of 10 . International capital flows in the form of foreign direct investment is a major in indicator of financial globalization.CHAPTER TWO LITERATURE REVIEW 2. Thus. Further. Obadan (2004).1 FOREIGN DIRECT INVESTMENT: CONCEPTUAL ISSUES: According to the International Monetary Fund (1977). posits that a direct investment enterprise refers to a situation in which a single foreign investor controls less than 10 percent or more of the ordinary shares or voting power of an incorporated or unincorporated enterprise with a view of having an effective voice in the management of the organization. the Organisation for Economic Corporation and Development (1983). foreign direct investment refers to investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor.
financial system‟‟. implying that its dwindling capital was barely replaced in the country. the larger the share of a country‟s capital flows in global capital flows. the more financially globalized it is taken to be. As observed by Akpokodje (1998).2 percent in the 1982 to 1996 era. further manifested in imbalances. “opening up a country requires investment for connecting the necessary infrastructure such as roads. The need to open up became very prominent in Nigeria at the aftermath of the economic crisis of the 1980s owing to the substantial drop in oil revenue. In the same vein. In this light according to Weitz and Lijane (1998). telecommunication.6% in 1973 to 1981 period to 4. power plants. foreign direct investment rate depreciated from 8.4% during the 1973 to 1981 period to 13. 11 widening saving-investment .financial and capital account liberalization.57% during 1982 to 1986 period. Nigeria‟s domestic investment as a ratio of gross domestic product declined from an average of 24. macroeconomic The economic crisis.
argues that in view of its clear benefits and advantages in relation to the other forms of capital inflows. in building up economic overhead capital and in creating larger employment opportunities. 2003). it is for these reasons that prominence is being attached to increasing the magnitude of foreign direct investment in Nigeria especially since 1982. massive unemployment and huge budget deficit (Akpokodje. chronic balance of payment problems. Owing to the above. it helps in industrialization. For not only does it bring money and machines but also technical know how. 1998). Overall. It is further heightened or esteemed for its less volatility and resilience to perturbations (Odusola. counteract the sluggish trend in 12 .gap. foreign direct investment should be preferred and accorded priority in consideration of external finance. high rates of domestic inflation. Obadan . as a means of augmenting revenue inflow.
official and private portfolio capital flows and further enhancement of employment (Uremadu. In analyzing the importance of an appropriate macroeconomic environment. 2006). 1997). fiscal and exchange rate policies 13 .2 DETERMINANTS OF FOREIGN DIRECT INVESTMENT FLOWS Several range of factors could account for the disproportionality and skewness of foreign direct investment inflow into a few countries. 2. A highlight of the determinants are as follows: i. and eliminates distortions in production. Macroeconomic Environment: A good macroeconomic environment may be defined as one which guarantees an efficient allocation of resources (including foreign exchange) . provides appropriate signals to producers in the real sectors of the economy. (Serven and Solimano. 1992). investment and consumption (Iyoha. asserted that monetary.
Obadan (1994). be given due attention in order to maximize all the benefits that accrue from foreign direct investment in Nigeria (Uremadu. foreign exchange rate management is a veritable tool for attracting foreign direct investment. traces the need for exchange rate in emphasizing that a sustained exchange rate misalignment in terms of over valuation or under-valuation. therefore. In reporting on the relationship between real exchange rate and 14 . Exchange rate is identified as the most important determinant of foreign direct investment in Nigeria and should . Further. 2006). is a major source of macroeconomic disequilibrium in developing countries. Below are the analyses of various components or variants of macroeconomic policies.directed at correcting macroeconomic inbalances would have a salutary effect on foreign direct capital flows. Firstly. Below are the analyses of various components or variants of macroeconomic policies.
(Chete and Akpokedje. 1997).foreign direct investment in Nigeria. Secondly. inflation in the economy signals the inability of government to manage the economy (Fisher. Finally. hence. posits that an over-valued exchange rate or highly distorted foreign exchange rate deters foreign inflows as well as discourages exports. postulates that the attendant fluctuation in the rate of exchange creates the problem of uncertainty which leaves a negative impact on manufacturing output. 15 . Monye-Emina (2001). an appropriate mechanism for determining not only a „realistic‟ but also a stable rate is desirous. An accelerating inflation rates impinge adversely on foreign direct investment flow by raising the risk of longer-term investment projects. lowering the average maturity of commercial bank loans and distorting price signals in the economy (Uremadu. 2005). 1993). in the light of the demand and supply conditions for foreign exchange.
000 population and the index of energy consumption this could be used to measure and infrastructure. sound financial system. desirable for attracting substantial amounts of foreign the inflow of direct investment inflow. In the literature. 2001). an appropriate fiscal. the number of telephone per 1. In summary.Finally. there is an emerging consensus that a conducive macroeconomic policy environment is. monetary and credit policy to ensure stable prices and interest rate. reduces operating costs and thereby promotes foreign direct investment (Wheeler and Mody. In connection. as well as a stable commercial and trade policy will contribute in no small measure to increase the confidence of foreign investors and raise foreign direct investment (Iyoha. 1992). ii Infrastructure Development: Good infrastructure facilitates production. therefore. 16 (Pfeffermann .
2006). that. an efficient infrastructural development proxied by the index of energy consumption will create conducive environment for high foreign direct investment inflows and increased domestic investment (Uremadu. and a range at surveys suggest a widespread perception that „open‟ economies encourage more foreign direct investment. iii Openness of the host economy to trade: A good indicator of openness is the relative size of the export sector. is a major determinant of foreign direct investment. posits that one of the 17 . 1992) identify. They further discovered that the size of the domestic market and improved capacity utilization are positively related to foreign direct investment. while inflation and volatile exchange rates have negative effects on foreign investment.Madarassy. Iyoha. among other macroeconomic factors. Finally. capacity utilization which relies much on efficiency of industrial or energy production.
reflecting economic development and 18 . the massive foreign direct investment flows it has and provincial gross attracted since the early 1980s national product. and growth rates. In conclusion. and further. according to World Bank.indicates that exports . Other tools for measurement are income levels average. Size of the market The size of the market could be proxied by the size of gross-domestic product.particularly manufacturing exports.Singh and Jun.concrete gains from increased openness and integration into the global economy is increased investment. in large part. that there is a strong evidence that exports precede foreign direct investment flows. trade and investment will accelerate in countries that have opened up to the global economy. There is a consensus that the size of China‟s market explains. Moreso . iv. are a significant determinant of foreign inflows.
potential demand.620 in 1980 to inflows #5. Asiedu (2003).8million and #6. 1977). 804million in 1982 and 1985 19 . For sub-Saharan Africa as a whole. resource base and potential need. has also been indicated as a major determinant of this concentration (Broadman and sun. the incentives created by the inflow of foreign direct investments has been mediocre.3 TREND IN FOREIGN DIRECT INVESTMENT FLOWS IN NIGERIA: Despite government the myriad of overtime. their small domestic markets are often cited as the main deterrent. identify gross domestic product growth as a major factor. and for majority of low-income countries which fail to attract large foreign direct investment flows. observed that the level of foreign direct investment attracted by Nigeria is medio cre despite her market size. 2. Bhattacharya et al (1996). However. Statistics investment shows that the nominal foreign direct rose from #3.382.
thereby raising subsequently from #14. #249. 456. Between 1986 and 1990.835. in which #115.463.7 million and #573.339 million in 1990 and to a low of #5.1 million in 1992 to #110. there was an inflow of #4.795 million in that year and an upward sustained increase or trend in net foreign direct investment inflows between 2000 and 2007.2 million was recorded in 2000. There was also a drop or oscillation between 1998 and 1999 which amounted to #92.313million which rose to a high of #10.610.2 million in 1991. hence indicating a growth rate of 556. The current sustained upward trend in foreign direct investment inflow 20 . 2003).157.952.respectively. in which the Structural Adjustment Programme was initiated.1 million in 2004 and 2006 respectively. there were several oscillations in the inflow of foreign direct investment. net foreign direct investment shows some degree of resilience.9% (Odusola.2 million in 1997. In 1986. Starting from 1992 onwards.
Further. an analysis of the net inflows shows that since 1970 net foreign direct investment flows have been positive except in 1989 and 1990.could be adduced to the privatization.6 percent inflows. commercialization and deregulation exercises of the government (Aremu. in which there were negative outcomes. Obadan (2007). sectoral analysis shows cumulative foreign direct investment been concentrated in the mining and quarrying. observed that mining and quarrying sector accounted for an average of 36. In the period 1992-2006. 21 . 2004). and trading and business services sectors. and agricultural sectors respectively. Also. manufacturing and processing. Also the finance and business services sector recorded 6 percent. and 10 and 1 per cent for transport and communication.5 percent of foreign direct investment flows while manufacturing and processing sector accounted for 28.
defines the unemployed as numbers of the economically active population who are without work but available for and seeking work. 1998). represents waste of human resources 22 . unemployment implies that actual output is less than potential output (Okun. 1962).The issue of underemployment is also important. inflow. inspite of a large market and government incentives.4 UNEMPLOYMENT: CONCEPTUAL ISSUES: There seems to be a consensus on the definition of unemployment. including people who have lost their jobs and those who have voluntarily left work (World Bank. agriculture has continued to maintain the least shares in foreign direct investment. Also. It is a situation where people‟s skills are not used or exploited to their fullest potentials and thus. The International Labour Organization.Overall. 2.
[Okojie .who in some cases happened to have been expensively trained (Umo. 2007). thus resulting in high level of youth unemployment. attributed the upsurge in the quantity and quality of educated unemployment to 23 . demand for labour has been declining. hence. The experience of Nigeria since independence in 1960. 1987). has been that of increasing rates of unemployment both in terms of quality and quantity. In this connection.2003]. posits that with a stagnant economy and low economic growth rate. Unemployment has been a major socio-economic problem in Nigeria. Okedara(1984) and Awopegba(1995). it generates welfare loss in terms of lower output thereby leading to lower income and well-being (Akinboyo. Thus unemployment has been categorized as one of the major impediments to social progress. Also. apart from representing a colossal waste of a country‟s resources.
Iyoha (2003). he further posits that the low unemployment rate of 4. posits that the Nigerian government failed to solve the unemployment problem at least in the short and medium term. Ojo (1998). inadequate job opportunities for graduates of tertiary institutions and inadequate practical skills. since it triggered retrenchments both in the public and private sectors. while unemployment rate blossomed in the 1980s with relatively high aggregates for urban and rural unemployment.3 per cent in 1976 could be attributed to the oil boom of the decade. Among the factors attributed to the above include. as well as high student-teacher ratio. In this connection. following the impact of the oil glut of 1982. In corroboration. although a modest growth rate of 5 percent was achieved in real gross 24 . observed that Nigerian unemployment problem emerged in the 1960s as it was virtually non-existent in the 1950s. In view of the Structural Adjustment Programme initiated.discrepancies in the production of high-level manpower and level of employment.
domestic product during the adjustment years of 19861992. Roads and Rural Infrastructure. and these include: The National Directorate of Employment. The Directorate of Food. This establishment of several institutions and schemes in tackling the problems. hence employment generation strategies and targets featured prominently (Obadan in the past National Development has led Plans to the and Odusola. Small – medium Scale Enterprises Scheme. 2001). The seriousness of the unemployment problem has attracted government attention over time. Micro Finance Banks and 25 . it was accompanied by a phenomenon referred to as jobless growth (Iwayemi and Jerome. 1996). Industrial Training Fund.
etc. it remains a major problem in Nigeria and with the current global economic crisis. Finally. 2006). viz.The National Poverty Alleviation Programme (NAPEP). The unemployment crisis has been attributed. the labour force “explosion” arising from the population explosion. the failure of industrialization to live to the expectations of many as an effective means of generating employment in the manufacturing sectors of less developed countries and over 26 . despite the efforts aimed at abating unemployment overtime. the massive rural-urban migration in less developed countries. the problem may become dismal. inter alia. to four major causes . 2.5 DETERMINANTS OF UNEMPLOYMENT Several factors account for the causes of unemployment and such factors result from various events that impede the full utilization of human economic skills or potential (Umo.
a highlight of the determinants of unemployment are as follows. 1971) and Iyoha. (Diejomaoh and Oriemalade. Iyoha (2004). ILO (1995). (1982). argues that population growth is the major factor of unemployment since population growth exceeds labour demand at prevailing wage rates. More recently. i Population Growth Rate Growth in population especially in developing economies impacts negatively on employment. and lack of international competition” In view of the above.production of school leavers and graduates who are illequipped for the labour market (Diefomaoh and Orimalade. the phenomenon of “jobless growth”. states that the rapid population growth rate of the 1980s translates into the rapid labour force growth of the 27 . 1971). posits that “the causes of unemployment growth or crises can be grouped under six headings. Also. poorly functioning labour markets. macroeconomic instability.
According to Sancho (1996). hence the weak or declining employment growth juxtaposed against rapid labour force growth would spur rising unemployment and underemployment rates. ii Gross Domestic product growth rate This relates to the value of the goods and services produced in the economy. Therefore. thus Okun(1961). posits that for every three percentage points growth in real gross national product.late 1990s and early 21st century. Hence Iyoha (2004). increasing 28 . macro and sectoral capacities to create new jobs and output composition. argues that employment prospects in Africa in the years ahead depend on many factors including especially the growth of gross domestic product. unemployment rates decline by one percentage point every year. economic growth is the driving force which makes job creation possible. Further. low output is inevitably associated with low employment.
output through expansion of national production would expand or broaden opportunities for employment creation in the economy. rising fiscal deficits. reckons that the best results of fiscal and monetary policies should be targeted to activities with the greatest employment creating potential. capital flight. observed that acute economic crisis in the 1980s which was caused by a lost of factors including poor macrocosmic policy management. led to inflation. 29 . but however. iii Defective Macroeconomic Policies The macroeconomic policies of a Nation through its allocative roles could impact on unemployment either positively or negatively. Iyoha (2004). scarcity of foreign exchange and massive unemployment subsequently.
Below is a highlight and of the their components effects of macroeconomic unemployment: Firstly. Hence Philips (1958). in and the consequently employment generation economy. Secondly. argues that 30 . There is indeed a tradeoff between inflation and unemployment and for this reason it has been observed that the goals of full employment and stable prices are largely incompatible. This is evident in the inflation-unemployment trade off that is implied by the Phillips curve. policies towards inflation has deleterious impact on unemployment. Monye-Emina (2001). Evidently. posits that an increase in the rate of change of nominal wages or prices (inflation) leads to decreases in unemployment rate. the result of scarcities or volatilities in the foreign exchange rate and high interest rates impacts negatively on imported limiting inputs and investment.
“Fluctuation in exchange rate will cause instability in purchasing power and hence negatively impact on investment in import of manufacturing inputs” in this connection. the result of scarcity of foreign exchange for imported inputs and high interest rates led to worker lay-offs in manufacturing firms. particularly. Overall. the extent of demand 31 . at an equilibrium level of employment in the employment. Iyoha (2004) posit that in the aftermath of the Structural Adjustment Programme of 1986. poor macroeconomic policies are constant drags inhibiting employment creation or opportunities through their deleterious effects on the economy. Ineffective Demand Effective demand refers to the total expenditure on the total output that is produced. Further. stated that the level of effective demand determines the level of employment in the economy. Keynes (1936). i.
unemployment rates between 1981 and 1986 were relatively higher than what obtained in the 1960s and 1970s (Ojo. and a peculiar feature of the unemployment problem in Nigeria is that it was more endemic in the early 1980s than any other period (Obadan and Odusola. educational strata and geographical entities. the incidence of unemployment in Nigeria has been deep and widespread cutting across all age groups. 1998). 2001). Therefore.determines the amount of resources utilized (Bannock et al. 1998). 32 . 2. deficiency in effective demand generates unemployment because it is tantamount to low production or output in the light of low amount of resources utilized. Notably.6 TREND IN UNEMPLOYMENT IN NIGERIA In recent times.
which then rose to 3. consistently declined to 2.3 percent in 1976 to 6.The rate of unemployment has always been highest within the 15-24 age groups.Unemployment rate rose from 4. It oscillated between 6. and recent data show the same pattern as the group represent 71. 220). unemployment rate fell significantly from a high of 7.6 percent of total unemployment even though it represent only 25% of potential labour force while in 1984 it accounted for almost three quarter of the unemployed.4 percent in 1980.0. 33 .2. And although it rose marginally to 3.4 and percent during the 1980-1985 period.1 Further. the unemployment rate.2 percent of all unemployed in 1994 (FOS. 1996: P.1 percent in 1991. 6.0 percent to a low of 3. Labour force survey between 1966 and1967 indicated that the group accounted for as high as 72.4 percent in 1992. and 1.8 percent points for 1993.4 percent in 1996 and 45 percent in 1997.7. 1994 and 1995 respectively. however.
hence long term unemployment has become a chronic problem in Nigeria (Okigbo.1 percent points in 2001 and 2004 respectively.8 percent for 2007 and 4. The unemployment rates for the years 2005-06 where stable with 2. Finally. 1986. 1994) 2. the increase in the duration of unemployment represents the most serious labour market development. there was an increase in unemployment rate to 4.9 percent for both years with an upsurge of 5.4 and 3.7 FOREIGN DIRECT INVESTMENT UNEMPLOYMENT: THEORY AND EVIDENCE: AND The expectant outcome in the relationship between foreign direct investment and unemployment is negative. which oscillated subsequently between 3.9% for 2008. 34 .7 percent.In 1999. This means that increase in foreign direct investments reduce unemployment rate. Oladeji.
Jayaraman and Singh (2007). posits an inverse relationship between increase in foreign direct investment on unemployment in Nigeria for 1988 to 1990 period after the introduction of the Structural Adjustment Programme. Further. in Nigeria. posits that the gains from foreign direct investment include not only creation of employment in those sectors which attracted overseas investors. in an empirical study of Fiji Pacific Island. Aremu (1997). Finally.The Literature is replete with the employment impact of foreign investments in terms of empirical investigations. but also of additional employment opportunities in ancillary sectors. the result seems inconclusive as the expected inverse relationship between unemployment and inflow of foreign direct investment could only be established for the period 1986 to 1990 and 1995 to 35 . which are supportive to all production oriented activities in the economy. however.
36 . but between 1991 and 1995. 2003).1997. positive association seemed to be established (Odusola.
. The Ordinary Least Squares method as well as other statistical tests were used in the analyses of the data. FDI.CHAPTER THERE THEORETICAL FRAMEWORK 3. for the period 1980 to 2007.2 MODEL SPECIFICATION The take-off point for the model used in this study is provided in Massoud (2008).-(3.1 SOURCES OF DATA AND METHOD OF ANALYSES Data for the study were sourced from secondary sources such as Annual Abstract of Statistics. UNR = F(POP.1) 37 . GDP. The model in its functional form is given below as. GOV). 3. of National Bureau of Statistics and the Central Bank of Nigeria‟s Statistical Bulletins.
UNR = B0 + B1POP + B2GDP + B3FDI + B4GOV + Ui …[3. B3.2] where. UNR = Unemployment rate POP = Population growth rate GDP = Gross domestic product as proxy for economic growth FDI = Foreign direct investment inflow GOV = Government expenditure and Ui = Random error term The Bs: B0. B3.Transforming the functional model above into an empirical form yields. B2. B4 < 0 38 . B1 > 0 : B2. The „a priori‟ expectations are given as. B1. and B4 are the parameters to be estimated.
The gross domestic product is expected to be negative since a rise in gross domestic product reduces unemployment. hence an increase in gross domestic product rate should reduce unemployment rate. Government expenditure that is directed forwards enhancing domestic production and consumption activities 39 . Foreign direct investment is signed negatively being that foreign direct investment inflow eases or bridges domestic saving-investment gap and foreign exchange constraints for enhancing industrial acceleration and thus creating employment through forward and backward leakages of foreign inflows.The parameter measuring population growth rate is positively signed because an increase in population leads to increase in labour force and consequently expanding the unemployment rate.
thus government expenditure is expected to be negative.has a multiplier effect in enhancing employment generation. 40 .
78) (-1.W =2.1] (-1.27+.CHAPTER FOUR EMPIRICAL ANALYSES 4.13POP–6.01 41 .97 (-1.96) R2 = 0.40 R2 = 0.25GOV …….1 PRESENTATION OF EMPIRICAL RESULTS The results of the empirical work are presented below: UNE = -5.86) (-2.30 F = 3.W =1.08) UNE = -3.13 (-.72 D.97InPOP -.80) (-2.14InGDP –23InFDI+0.37) R2 = 0.60) (.2) (-1.92GDP–2.44 F = 6.46) (2.67 +1.01) D.53 R2 = 0.001InGOV … (4.70FDI–1..43) (2.[4.
Government expenditure and the foreign direct investment estimates were-1.25 and -2. indicating that the expected level of unemployment when all the other parameters are zero is -5.1 DISCUSSION OF EMPIRICAL RESULTS.13. show that unemployment is associated positively with population but negatively with government expenditure.13 units. foreign direct investment and gross domestic product. which means that a unit increase in government expenditure and foreign direct investment will reduce unemployment by -1. The estimate of the intercept terms was -5.4. Further. meaning that a unit increase in population leads to an increase in unemployment by 0.92.70 units accordingly. the coefficient for gross domestic product was -6.30 percents 42 .27 units.25 and -2. units. The estimate of the population parameter was 0.40 and 0.70 respectively. An observation of the Ordinary Least Squares results above. the R2 and R2 were 0.27. Finally.
67 percent.7. the DurbinWaston value of 1.03.67 percent. being above the critical value of 0. the explanatory variables explained about 30 percent of the variations in the dependent variable using the Adjusted Sum of Squares (R2).97. The estimate of the intercept term was -3. indicating that the expected level of unemployment when other explanatory variables are zero is -3. The estimate of the population and government expenditure 43 . passed the test of significance. A satisfactory result was obtained with the Log-Linear method. which showed that unemployment is associated positively with population and government expenditure. The F. clearly shows the absence of autocorrelation.however. but negatively on foreign direct investment and gross domestic product. Hence.respectively. The initial result appeared spurious and suggested the presence of heteroskedasticity.statistic though weak at 3.Lastly.
The values for the R2 and R2 improved to 52 and 44 percents respectively.23 and -0.23 and -0. meaning that a one percent increase in foreign direct investment and the gross domestic product parameters were -0. Further.97 and .001 percents respectively.001 percent increases in unemployment accordingly.parameter were 1.97 and . thus a one percent increase in population and government expenditure will lead to 1.14 percents respectively. meaning that a one percent increase in foreign direct investment and gross domestic product will bring about a decrease in unemployment by -0. thus indicating that the explanatory variables explained about 44 percent variations in the dependent variable using the Adjusted Coefficient of Determination (R2) 44 . the estimates of the foreign direct investment and the gross domestic product parameters were -0.14 respectively.23 and -0.14 respectively.
there exist a linear relationship between unemployment and the explanatory variables. Finally. Therefore.13percent and statistically significant as well. the Durbin-Watson value of 2. 45 .002.001 is indicative of the absence of autocorrelation. being above the critical value of 0.The F-statistic increased to 6.
negatively the and government However. with the population parameter positively signed. The study on the whole showed that foreign direct investment and government expenditure overtime have yet to meet the expectation of creating broadened employment 46 . 5. gross domestic parameter for expenditure. of with correction presence heteroskedasticity. expenditure the signed.CHAPTER FIVE SUMMARY. and the foreign direct investment. RECOMMENDATIONS AND CONCLUSION. The results of the empirical findings showed that all the explanatory variables initially conformed to the „a priori‟ expectations and were statistically significant. the government expenditure parameter became positively signed and statistically insignificant in contrast to the „a priori‟ expectation.1 SUMMARY OF FINDINGS.
2 RECOMMENDATIONS Based on the research findings. 5. the following growth and financial management in the recommendations are proffered. 47 . (i) Efforts should be geared by government towards encouraging the adoption of family planning strategies as a means of stemming the current growth in population. adequate efforts should be made to mobilize the desired gross national savings towards raising capital formation to a level needed for industrial growth. Essentially. (ii) In a bid to attract greater foreign inflows.opportunities across all sectors of the economy. this could be adduced to the deleterious effects of continual population economy.
consumption and capital infrastructure in promoting real sector investments and industrial acceleration in the economy. increase domestic savings and in the overall macroeconomic management of the economy. (v) The monetary authorities and government should initiate and sustain policies that are necessary or needed to fast track growth in foreign inflows. 48 . greater proportion of our annual national income should be invested in productive capital goods. (iv) In order to enhance and maximize the impact of gross domestic product growth.(iii) Greater government expenditure should be ploughed into productive economic.
therefore greater and consistent foreign inflows should be sourced on the bases of the right policy framework and directed or piloted into industries and sectors that would bring about optimost growth in the economy and with high labour absorption capacity . owing to corrupt financial practices and mismanagement (ii) Foreign direct investment inflow is the most germane or important determinant of unemployment in Nigeria.while also optimizing on the rightful use of government‟s 49 .3 CONCLUSION In order to combat the growing spat or trend of unemployment in Nigeria. Overall.5. the following remarks are made from the overall observations above: (i) That government expenditure is a poor determinant of unemployment in Nigeria.
50 .revenue or expenditure in the provision of economic infrastructures in enhancing capital formation and growth in gross domestic product towards generating employment in Nigeria.
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