Trade openness and unemployment: Empirical evidence for Nigeria

Abstract

In the wake of the global financial crisis, unemployment rates and openness to trade have been the subject of considerable research, especially in developing countries. This study analyses the impacts of trade policy on unemployment rates in Nigeria. Using time series data from 1970 to 2010, it adopts the vector error correction methodology. In order to explore the impact of a range of variables on the relationship between trade openness and national unemployment rates, these variables, in a system of equations, include measures of trade openness, public recurrent spending on education, foreign price shocks and real gross domestic product or alternatively income per capita. The findings reveal that in the long run, real output and income per capita lead to a decline in unemployment, but trade openness policy is associated with an increase in unemployment. Foreign policy shocks, as proxied by commodity prices, also exert a positive effect on unemployment rates and do not contribute subsequently to restoring the system to equilibrium. However, the initial impact of openness and foreign price shocks captured by short-term dynamics are observed to reduce unemployment.

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“…This result may be attributed to the labor institutional market condition in the country because it has been argued that where there is pronounced restrictive labor market regulation and more prevalent of informal labor market, trade openness may worsen unemployment rate (Menezes-Filho and Muendler, 2011). Our results are also akin to the finding of Nwaka et al, (2015) who found that trade liberalization proxied by trade openness worsens unemployment in Nigeria.…”

“…On the impact of international trade on unemployment rate, studies are inexhaustible but characterized with mixed findings. While some studies such as Felbrermayr et al (2009); Dutt, Mitra and Ranjan, (2009), Kim (2011), Loganathan et al, (2011), Hassan, et al (2012 as well as Anyanwu, (2014) agreed that trade openness and unemployment were inversely related, that is, trade openness reduced unemployment, there were ample of other studies such as Davis (1998), Egger and Kreickemeier (2009), Helpman and Itskhoki (2010) and Nwaka, et al (2015) suggested that trade openness worsened unemployment. Deviation from the two contracting sides above are the studies such as Sener 2001and Moore and Ranjan (2005) who concluded that trade openness had no direct effect on unemployment.…”

Revisiting the trade and unemployment nexus: Empirical evidence from the Nigerian economy

“…Although the unemployment crisis in Nigeria has drawn the attention of many researchers over the years, however, most of the available studies have focused more on the impacts of unemployment on the growth of the economy with the exception of a few that have viewed unemployment challenges from the trade perspective. Nwaka, Uma, and Tuna (), in their study, adopted the vector error correction technique (VECM) in analyzing time series data from Nigeria between 1970 and 2010, and their results showed that trade openness is associated with rising unemployment in Nigeria. Furthermore, some studies have also focused on investigating the determinants of unemployment within the context of the Nigerian economy for instance; Orji, Orji‐Anthony, and Okafor () investigated the unemployment inflation relationship in Nigeria and obtained a significant positive relationship among these two variables.…”

Economic factors influencing the dynamics of unemployment in the G10 countries: empirical evidence from panel data modeling

“…According to the alternative panel data estimations presented in Table 4, the variables reflecting the situation of economic activity may have a positive impact on unemployment, except for gross fixed capital formation, in line with Bande and Riveiro (2012), who found that consumption shocks had a lowering impact on unemployment, while we show that investment shocks led to an increase in the unemployment rates in these countries. Thereby, it can be deduced that increases in consumption and investments and rising inflation may have consequences for the labor market by affecting the labor demand and supply, similar to Karanassou et al (2008), Ciccarone et al (2014), Gozgor (2014) and Nwaka et al (2015). Moreover, we can infer that growth in the aggregate demand may lead to a push in the demand for labor in the G10 countries, which in turn may increase the real wage and promote an increase in the labor supply.…”