Abstract

The paper investigates fiscal policy and unemployment in Nigeria. The main objective of this study is to examine the impact of government capital and recurrent expenditure on unemployment rate in Nigeria. The study utilized aggregate annual data from 1980 to 2013. The data was analyzed with the co-integration and ECM methods. The findings are: the test for stationarity using Augmented Dickey Fuller (ADF) showed that all the variables were stationary at various levels. The Johansen-Juselius co-integration employed in testing for long run equilibrium relationship among the variables indicated that cointegrating relationship was found among the variables. The parsimonious ECM result reveals that the two independent variables (Government Capital and Recurrent Expenditure) have both negative and significant relationship with unemployment in Nigeria. The result also reveals a long run relationship between fiscal policy and unemployment, as depicted by both the sign and the statistical significant of the coefficient of the ECM. From the result so far, it is obvious that fiscal policy is effective in reducing unemployment rate in Nigeria. Based on these findings, the paper recommends amongst others that expansionary fiscal policy should be encouraged as it plays a vital role in the development process of an economy. Also, there should be appropriate policy mix improvement in quality of government expenditure. This will enable Nigeria government to increase her capital expenditure especially in the area of infrastructural development e.g power supply so that the citizenry can utilize such to boost the production and hence increase employment opportunities in Nigeria.