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Abstract

The goal of every government is to provide decent employment for its citizenries. This goal has, however, become unattainable in many countries, particularly in developing countries, including Nigeria.

As a result, several empirical studies have been conducted with the goal to find macroeconomic variables that are positively (negatively) correlated with the employment (unemployment) so that government can direct its policy arsenals towards that direction. However, little empirical investigation has been conducted on how financial development relates to unemployment in the short-run and the long-run, taking into consideration different measures of financial development. This is the aim of this study.

Using various financial development indicators and employing ARDL as a method of estimation, it was found that only financial system deposit to GDP has a potential to reduce the unemployment rate in the short-run and the long-run. Other financial indicators such as credit to private sector, financial liquidity, financial efficiency and financial stability only reduce the unemployment rate in the short-run. We also found that financial development and unemployment rate (including inflation rate and real GDP) are cointegrated. The results we attributed to the level of financial sector development in Nigeria compared with the level of financial sector development in Emerging and Developed Countries.

Based on this, it is important for the authority to further strengthen and deepen the financial sector by proper supervisions and regulations as well as formulation and implementation of appropriate policies so that the sector can perform its intermediary role effectively and efficiently in the economy.