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The Relationship Between Unemployment And Inflation In Nigeria.

Unemployment in Nigeria is a major problem both economically and socially. It has adversely affected the purchasing power of people. With less consumption leading to lower production, economic growth has been hampered. Unemployment also has social consequences as it increases the rate of crime.

Photo Credit: Nytimes

Nigeria is endowed with diverse and infinite resources, both human and material. However, years of negligence and adverse policies have led to the under-utilization of these resources. These resources have not been effectively utilized in order to yield maximum economic benefits. 

In the Nigerian economy, inflation has become one of the intractable problems. Having registered low rate of inflation in the years immediately after independence, the country experienced double-digit inflation in 1970. Ever since, the rate has continued to move at an upward trend.

In the model, the consumer’s price index which was used as a proxy for inflation rate was regressed against unemployment rate, growth rate of money supply, budget deficit, real gross domestic product, interest rate and lagged interest rate.

The major findings of my research are summarized below:

1. There exists a positive and significant relationship between the inflation rate and unemployment. The implication of this result is that there is evidence of stagflation in Nigeria.

2. The result has also revealed that budget deficit is an insignificant factor affecting inflation in Nigeria. The implication is that although the neoclassical school of thought are of the notion that the more an economy borrows, the higher the rate of inflation, this can only be possible if the economy is at its full employment of resources.

3. The result also shows that the growth rate of money supply is an insignificant determinant of inflation in Nigeria, and that the relationship that exists between them is negative, this finding goes against the quantity theory of money, which established a positive relationship between price levels and money supply.

4. Also, the real gross domestic product is a very significant determinant of inflation in Nigeria. The value of goods and services is an essential determinant of inflation in Nigeria.

5. The result also showed that the present year’s rate of interest was a significant determinant of inflation.

6. The value of last year’s interest rate had no significant impact on this year’s inflation rate.

Thus, inflation has been seen as the problem of the slow pace of economic growth and development in Nigeria, and its solution does not seem to be easily realizable.

Reference Sources:

Content created and supplied by: FrankChukwu (via Opera News )

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