Effect of agricultural development on unemployment reduction in Nigeria: An error correction mechanism approach

Abstract

Background: Unemployment situation in Nigeria has defied many measures initiated of successive  governments over time. The upward rise in unemployment index denotes a sharp divergent between the expected outcome of modelled economic development plan of the government, and the reality. Agriculture has the potential to address the lingering problem of joblessness.  

Objective: The crux of the study was to examine the effect of agricultural development on unemployment reduction in Nigeria.

Methodology: The study adopted an ex-post research design, utilizing Error Correction Mechanism (ECM), and Error Correction Mechanism Granger causality test.

Results: The annual time series data utilized in the study were verified for unit root test using Augmented Dickey-Fuller test (ADF). The variables (Unemployment rate [UEMP], Public Expenditure on Agriculture [PEA], Bank Lending to Agriculture [BLA], Inflation Rate [INF], Exchange rate [EXR] and Share of Agriculture to Gross Domestic Product [SAG]) were found to be stationary at the same order of integration 1(1). This finding gives credence to the adoption of ECM approach. The parsimonious ECM result showed that PEA, INF and EXR exert negative effects on UEMP. Hence, the negative dimension of INF and EXR conforms to the apriori expectation, while PEA did not conform to the apriori expectations. On the other hand, the study also found that BLA and SAG exert positive effect on UEMP. The Granger causality result showed a bi-directional causation between UEMP and SAG.

Unique contribution: The study has established that the selected agricultural development indices (PEA, BLA, INF, & EXR) impact significantly on unemployment reduction in Nigeria.

Conclusion: The study concluded that current unemployment rate can be reduced through agricultural development in Nigeria.

Key recommendations: The study, therefore, recommends that monetary authorities should carefully and coherently pursue a policy that can control inflationary pressure in the economy, and at the same time, adopt friendly exchange rate policy that can stimulate investment in the sector.