Abstract
The increasing unemployment in Nigeria has motivated several empirical studies on the causes of the problem in the country. However, attention has not been paid to the contribution of the changes in oil prices to the unemployment problem. As a net exporting oil country, a fluctuation in oil prices in the international market can have impact on economic growth and employment. In the light of this, we investigate the effect of changes in oil prices on unemployment rate in Nigeria, using real oil prices of Brent and West Texas International with linear and nonlinear autoregressive distributed lag (NARDL) estimation methods. Findings from linear ARDL show that changes in oil prices have little or no significant effects on unemployment rate. The NARDL results indicate that an increase and a decrease in oil prices have an insignificant positive effect on unemployment in the short run. However, in the long run, an increase in oil prices worsens unemployment situation, while a decrease has insignificant reducing effect. We also find evidence of a long-run asymmetric relationship between oil prices and unemployment. The need for government to invest oil revenues in generating more electricity or in providing alternative sources of energy with the objective to reduce the costs of production of firms is recommended.
Highlights
The connection between the crude oil price and the economy has been recognised by academic researchers and policymakers for a very long time in both the oilproducing and nonoil-producing countries
With regard to the results of nonlinear autoregressive distributed lag (NARDL) for both relations, short-run results show that both increases in real oil prices (Brent or WTI) have positive effects on unemployment which suggests that there is no significant difference in the effect of an increase or decrease in oil prices on unemployment
Despite the fairly large number of empirical studies that have been conducted on the relationship between oil price changes, shocks or fluctuations and macroeconomic variables, little attention has been paid to an investigation into how the oil price shocks in the international market affect the unemployment rate, especially in Nigeria
Summary
The connection between the crude oil price and the economy has been recognised by academic researchers and policymakers for a very long time in both the oilproducing and nonoil-producing countries. In the real Brent oil prices– unemployment model, the coefficients of the ECMs for ARDL and NARDL are − 0.051 and − 0.078, respectively This implies that about 5.10% and 7.80% of the disequilibria that occur in the labour market in Nigeria can be corrected for in the current year and it will take a long time to complete the adjustment towards the long-run equilibrium. In linear ARDL model for oil prices–unemployment relations, an increase oil prices still has a positive effect on unemployment rate in the short run and insignificant mixed results in the long run. With regard to the results of NARDL for both relations, short-run results show that both increases (positive and negative) in real oil prices (Brent or WTI) have positive effects on unemployment which suggests that there is no significant difference in the effect of an increase or decrease in oil prices on unemployment. The negative effect of decrease in oil prices on unemployment is only statistically significant at 10% in the model of real WTI oil price–unemployment relation
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