Macroeconomic Determinants of Unemployment in Nigeria (1973-2023): An ARDL Bounds Testing Approach

This study examined the long-run and short-run relationships between unemployment and key macroeconomic variables: Gross Domestic Product (GDP), Foreign Direct Investment (FDI), Money Supply (M2), Lending Rate (LR), and Population Growth (PG) in Nigeria. Using the Autoregressive Distributed Lag (ARDL) model, the study found a significant long-term equilibrium relationship among the variables, confirmed by the bounds test results. The error correction term (CointEq) was statistically significant and negative, indicating the presence of a long-run relationship with a speed of adjustment of approximately 60%. Furthermore, diagnostic tests revealed no evidence of heteroscedasticity or serial correlation, and the model passed the stability tests, as evidenced by the CUSUM and CUSUM-Square results. The findings suggest that Foreign Direct Investment, Lending Rate, and Money Supply have a significant impact on unemployment in both the short-run and the long-run. Based on these results, the study concludes that sound monetary and investment policies are crucial for managing unemployment in the long term. It also recommends that policymakers focus on stimulating FDI and prudently managing the lending rate and money supply to achieve sustainable economic growth.