The Implications of Rising Public Debt on Unemployment in Nigeria: An Auto Regressive Distributed Lag Approach

Abstract

This study examined the implications of rising public debt on unemployment in Nigeria (1980-2015) using the auto regressive distributed lag model and Wald test econometric analytic tools. The findings of the study indicate a long run relationship between the dependent and independent variables. It is estimated from the ARDL long run test that 1% increase in public debt on the average, will bring about 1.6% increase in unemployment rate (UNEM). The result from the ARDL long run test reveals also that 1% increase in GDP growth rate on the average will bring about 0.12% decrease in unemployment rate (UNEM). On the other hand, it was found that 1% increase in inflation rate will bring about 0.2% decrease in unemployment. The study therefore concludes that public borrowing in Nigeria has not created its desired impact in the economy; hence the increase in public debt has not reduced unemployment. Also, rapid increasing debt service obligations constitute an obstacle to the implementation of new development oriented projects; therefore, worsening unemployment situation in the economy. The study therefore, makes the following recommendations: firstly, that public borrowing should strictly be for capital projects that have the capacity to create jobs only. Secondly, economic sector projects should have positive internal rate of return as high as the cost of borrowing and government should imbibe high level of transparency in public expenditure and procurement process. Finally, over bearing domestic borrowing should be discouraged as these crowds out private sector investment and consequently compounds our unemployment issues since the government naturally cannot compete with the private sector.