Trade Liberalization and Unemployment in Nigeria

Abstract

This study examines how trade liberalization affected Nigeria's unemployment rate from 1981 to 2024, utilizing exchange rates, trade openness, and foreign direct investment (FDI) as explanatory factors. The work uses a parsimonious error correction model (ECM) to capture both long-term and short-term dynamics. The findings show that while FDI has a little impact, trade openness considerably raises unemployment in the short term. Higher unemployment is positively correlated with exchange rate depreciation. With a negative and significant ECM term, deviations from long-run equilibrium appear to be adjusting at a pace of 19.7% each period. The results show that trade liberalization may make unemployment in Nigeria worse if it is not accompanied by conducive domestic labor and industrial policies. To optimize employment advantages from trade openness, the report suggests conducting targeted labor market measures, stabilizing the currency rate, encouraging labor-intensive FDI, bolstering local sectors, and enacting phased liberalization policies.