Is there a Trade-Off between Inflation and Unemployment: The Case of Nigeria

Irene Olanma Onwuemeka, Sandralyn Ifeoma Obiukwu, Kelechi Chibueze Abamara and Queen Chijindu Okeke
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Irene Olanma Onwuemeka: Department of Eonomics, Renaissance University Ugbawka, Enugu State.
Sandralyn Ifeoma Obiukwu: Department of Economics, Alvan Ikoku Federal University of Education, Owerri, Imo State.
Kelechi Chibueze Abamara: Department of Economics, Nnamdi Azikiwe University, Awka, Anambra State.
Queen Chijindu Okeke: Department of Economics, Nnamdi Azikiwe University, Awka, Anambra State.

International Journal of Research and Innovation in Social Science, 2024, vol. 8, issue 9, 2606-2620

Abstract: This study examined whether a trade-off exist between inflation and unemployment in Nigeria by investigating the validity of the Phillips Curve Preposition in the Nigerian economy using data from 1981-2022. The Autoregressive Distributed Lag Bounds of cointegration was employed for the analysis of short-run and long-run effects of inflation, population growth rate and foreign direct investment on unemployment. The short-run result endorsed the validity of the Phillips Curve preposition in Nigeria. Thus, a moderate inflation is tolerated in order to enjoy low unemployment in the short-run and vice verse. However, the results of the long-run revealed that there is no trade-off between inflation and unemployment in Nigeria and that the Phillips Curve is a vertical line at the natural rate of unemployment. Furthermore, the causality results showed the presence of unidirectional causality from inflation to unemployment in Nigeria. On the basis of this study it can be concluded that an attempt to decrease unemployment at the cost of higher inflation in the short run led to higher inflation and no change in unemployment in the long run in Nigeria. Consequently, we recommend among others, adoption of discretionary policy that would reduce unemployment by boosting government spending and at same time maintain stability in money supply. In addition, creation of a more business friendly economy by the government is needed to attract foreign direct investment into the economy for job creation.

Date: 2024
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