Testing the validity of Okun’s law in Nigeria: a sectoral perspective

Wasiu Ademola Adekunle, Adewumi Otonne and Joshua Adeyemi Afolabi

African Journal of Economic and Management Studies, 2025, vol. 17, issue 5, 577-595

Abstract: PurposeThe purpose of this study is to test the sectoral validity of Okun’s law in Nigeria over the period from 1991 to 2023.Design/methodology/approachThis study leaned on the difference version of Okun’s law specified within the autoregressive distributed lag (ARDL) model.FindingsAs expected, a negative relationship exists between sectoral growth and the unemployment rate; however, the responsiveness of unemployment to growth differs across economic sectors. The services sector has the greatest potential for reducing unemployment.Practical implicationsBased on the study’s findings, practical policy focus should shift toward boosting productivity and job elasticity in Nigeria’s services sectors (particularly information and communication technology (ICT) and health), which show strong potential for reducing unemployment in both the short and long run. While sectors like agriculture, industry and trade contribute significantly to gross domestic product, their low employment impact limits their effectiveness in addressing joblessness. The government should prioritise strategic investments, skills development and innovation within the ICT and health sectors to maximise their employment potential. Furthermore, enhancing short-term employment in manufacturing could provide immediate relief.Social implicationsTo reduce unemployment in Nigeria.Originality/valueThis is the first study among the very few on sectoral Okun’s law in Nigeria to use the difference specification of Okun’s law within the ARDL framework. The study provides a fresh understanding of how to channel efforts to reduce unemployment in Nigeria appropriately. It provides robust and evidence-based policies that can nip the unemployment menace in the bud in Nigeria.

Keywords: Okun’s law; Unemployment rate; Sectoral growth; Foreign direct investment; Net migration (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ajemsp:ajems-11-2024-0666

DOI: 10.1108/AJEMS-11-2024-0666

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