Macroeconomic Determinants of Employment in Nigeria’s Services Sector: Do Foreign Direct Investment and Exchange Rate Matter?

Abstract

This study employs the ARDL modeling technique to investigate the determinants of employment generation in Nigeria' s services sector, focusing mainly on the roles of foreign direct investment and exchange rate movements during the 1991-2019 period. This study found that in the short-run, FDI positively affects employment generation in the services sector, while currency depreciation adversely affects it with a one-year lag. The long-term employment generation effect of the FDI in the services sector remains positive. Still, it loses its statistical significance, while the impact of currency depreciation on services sector employment is positive and significant. It was also found that economic growth positively affects service sector employment generation in the short and long run, though the effect is only meaningful in the short term. The impact of trade openness is positive and significant over a short period but also turns out to be non-significant in the long run. Financial sector development favors employment generation in the services sector in the short and long run. Based on this evidence, it is recommended that the government try to enhance the attractiveness of various sectors of the economy to FDI and guard against undue appreciation of the nation' s currency. It is also recommended that economic growth and the development of the financial system be prioritized. Given the transience of the effect of trade openness on employment generation in the services sector, caution must be exercised in implementing trade liberalization policies. These measures, if implemented, are expected to enhance job creation in the nation' s services sector.