The Determinants of Unemployment and the Question of Inclusive Growth in Nigeria: Do Resource Dependence, Government Expenditure and Financial Development Matter?

The paper examines the determinants of unemployment in Nigeria from 1981 to 2013, using error correction model (ECM), and with ordinary least squares method for robustness check. The study finds that output size (measured by GDP), foreign direct investment, exchange rate depreciation, and trade openness curb labour unemployment in Nigeria, while factors that worsen labour unemployment include financial development (measured by private credit), intensive capacity utilisation, and natural resource rent. Government capital expenditure, though not significant, increases unemployment rate in Nigeria, alluding to corruption and the tendency for public officers to divert funds to accumulate political capital, rather than socially productive ones. Inflation produces mixed outcome in both the short-run and long-run estimation. The study has confirmed that resource dependency, shallow financial depth, poor public expenditure management, and wrong production technology choice undermines unemployment in Nigeria, and thus attainment of inclusive growth. This calls for intensified efforts at financial sector liberalization drive to broaden the financial system, improve institutional quality, and adopting economic diversification strategy to reduce structural misalignments and attain a non-declining inclusive growth in Nigeria.