An Assessment of the Impact of External Sector on Unemployment Rate in Nigeria

Abstract

This study examines the impact of external sector changes on unemployment rate in Nigeria over the period 1988 to 2023. The independent variables include the real effective exchange rate, foreign direct investment, external debt, and the balance of payments, while the unemployment rate is used as the dependent variable. Data for the study were sourced from the World Bank and CBN. The study employed the Autoregressive Distributed Lag (ARDL) estimation technique to analyze both short-run and long-run relationships among the variables. Empirical findings revealed that foreign direct investment, the real effective exchange rate, external debt, and the balance of payments exert statistically significant positive effects on unemployment rate in Nigeria. The study concludes that unemployment rates in Nigeria is strongly linked to external sector performance, implying that macroeconomic stability and effective external sector management are essential for improving labor market conditions. Based on the findings, the study recommends, among other things, that policymakers should prevent persistent currency overvaluation through a disciplined exchange rate regime supported by coherent monetary and fiscal policies. A stable and competitive exchange rate will promote exports, encourage domestic production, and increase labor demand, particularly in industries with high employment potential.