Industrial development and unemployment in Nigeria: an ARDL bounds testing approach

Abstract

Purpose The industrial sector has been identified as one of the means to address the issue of unemployment due to its role in ensuring sustainable development. However, evidence from the Central Bank of Nigeria Statistical Bulletin reveals that the sector lags behind the agricultural and services sector in terms of its contribution to the gross domestic product. In light of this, the purpose of this paper is to ascertain whether the industrial sector development is a veritable tool in addressing the issue of unemployment in the long run for the Nigerian economy. Design/methodology/approach In order to determine whether industrial development is a veritable tool in addressing the issue of unemployment in the long run, the study makes use of the Autoregressive Distributed Lag model. The choice of this method over the commonly used Johansen co-integration approach is that it provides the mechanism to estimate the model in the presence of different order of integration among the macroeconomic variables; it allows us to combine and I(0) and I(1) series, while there is strict assumption of I(1) for all variables under the Johansen approach. Findings The major finding of the paper is that an inverse and elastic relationship exists between industrial output and unemployment. This suggests that the unemployment rate is very sensitive to changes in the industrial sector in Nigeria. Research limitations/implications The major limitation is the availability of recent data to capture recent happenings in the Nigerian economy. Originality/value The paper considers the entire sector encompassed in the industrial sector as opposed to focusing on just the manufacturing sector.