Abstract:
This study was an attempt to examine the short run and long run influence of private sector credit on the rate of unemployment in Nigeria from 1990 through 2020. Data which were obtained from the Central Bank of Nigeria and the World Bank were analysed using the Augmented Dickey-Fuller (ADF) unit root test, autoregressive distributed lag (ARDL) bounds test for cointegration, and error correction model. The unit root test revealed that our time series variables were integrated of orders 0 and 1. Using the ARDL bounds testing approach to detect the possibility of any cointegration among the variables, our findings revealed that a long run relationship exists between unemployment rate and private sector credit, clearly showing that private sector credit affects unemployment in the long run. From the ARDL estimates, credit to the private sector put forth a positive but insignificant influence on unemployment; while its one-period lag wielded a positive and significant effect. This shows that the past value of credit to the private sector could not support the reduction in unemployment. In the long run, credit to private sector is noted to wield a negative effect on the unemployment rate, though such an effect is insignificant. Such could be linked to the effect of interest rate as the study revealed a positive and significant influence of interest rate on the rate of unemployment in Nigeria. The paper therefore concludes that increasing the volume of private sector credit will help stimulate productivity which will aid in a long-term unemployment reduction in Nigeria if the rate of interest is put in check.
|