Do Unemployment and Inflation Substantially Affect Economic Growth?

Abstract

Do Unemployment and Inflation Substantially Affect Economic Growth? Bello Malam Sa’idu, Auwal Abubakar Muhammad Abstract Unemployment and inflation are persistently complex and alarming problems to every economy. These twin macroeconomic variables are significant in influencing economic growth especially in developing economies. Thus, the aim of this study is to examine how unemployment and inflation substantially affect economic growth. To achieve this, three models were thoroughly subjected to quantitative analysis, namely; Ordinary Least Square (OLS) method, Augmented Dickey-Fuller (ADF) technique and Granger causality test. The result of the regression revealed that the coefficient of inflation is positive and statistically significant while unemployment is positive but has no significant effect on economic growth. This proves that inflation substantially affect economic growth, although unemployment has little substantial effect on it. Moreover, result of the unit root indicates that all the variables in the model are stationary whereas, the result of causality test suggests that unemployment does not granger causes economic growth and inflation, but economic growth and inflation Granger cause unemployment, also there exist Granger causality between economic growth and inflation. Therefore, the result suggests a one-way causation flowing from inflation to GDP. Consequently, the major policy implication of these results is that concerted efforts should be made by policy makers towards restructuring the economy, managing price instability and improving infrastructure. Full Text: PDF DOI: 10.15640/jeds.v3n1a13