effects of phillips curve on the nigerian economy

Topics: Unemployment, Inflation, Monetary policy Pages: 48 (14114 words) Published: December 11, 2013
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
In Nigeria, there have been problems in achieving macroeconomics objectives. The problem inherent in achieving the macroeconomics objectives are inflation, unemployment, low investment, poverty, low foreign reserve (i.e. deficit balance of trade). After the independence of Nigeria in 1960, Agriculture was the livewire of Nigerian economy, Nigeria being an agrarian nation can’t de-emphasize the importance of agriculture not only to her economy but also to general well being of the populace. The basic importance of agriculture in Nigeria include but not restricted to provision of food for all, provides employment for about 70% of the populace, source of family and national income, generate savings both external and internal revenue among others. Agriculture which was the livewire of Nigerian economy has suffered from mismanagement, inconsistent and poorly conceives government policies, neglect and the lack of basic infrastructure. Nigerian is no longer a major exporter of cocoa, groundnuts, rubber and palm oil. The agriculture sector failed in meeting the adequacy in foreign exchange reserve due to high imports and prevalence of oil export which led to massive unemployment in Nigeria. The oil boom of the 1970s led Nigeria to ignoring its agricultural products and highly dependent on oil. Due to the prevalence of oil, the foreign exchange reduced drastically hence leading to the federal government earning most of its income from oil export. In light of the high expansionary public sector fiscal policies in 2001, the government sought ways to head of higher inflation thus leading to the implementation of stronger monetary policies. The decline in agricultural export, decline in industrialization, dependence on oil are causes for slow economic growth in Nigeria. From the research on agriculture and oil boom, it reveal that unemployment and inflation are the two major pests eating deep into the macro economics objectives. “Inflation is the general increase in prices of goods and services in an economy” (CBN 2008), inflation is also an economic parasites caused by high demand for goods in relation to supply thereby raising to prices of the few goods, weak monetary policy hence inflation sucks the economy of Nigeria as it reduces the value of money. Unemployment on the other hand could be defined as the economic situation when people are having no work or are seeking for active work to involve themselves in. This economic parasite could be caused by high level of literacy, low investment, weak monetary policy and fiscal policy, low foreign direct investment (Batini,2004). Over the years, the problem of inflation and unemployment has been concurrent. These two economic problems affect the growth of any economy in the world. Some scholars see them as so correlated or related that the occurrence of one variable affects or reduces the other. This led to Phillips curve 1.2Statement of the Problem

According to Phillips, there is a negative relationship between inflation and unemployment, this relationship is referred to as ‘Phillips Curve’. This study shall examine the theories of Phillips Curve whether truly there is a negative relationship between unemployment and inflation in Nigeria. This study shall also examine the shifting of Phillips Curve as postulated by Keynes. According to the study by Keynes ‘There is bound to be shocks in an economy whereby one of unemployment and inflation would be affected without necessarily affecting the other.

YEAR
UNEMPLOYMENT RATE
INFLATION RATE
2000
6.9
18.1
2001
18.9
13.7
2002
12.9
12.2
2003
14.0
14.8
2004
15.0
11.8
2005
17.8
11.9
2006
8.2
13.7
2007
5.4
14.6
2008
11.6
14.9
2009
12.4
19.9
Source: CBN Statistical Bulletin
Evidence from Nigeria shows the relationship between unemployment and inflation rate from 2000 - 2009 .

From the above, it is clearly seen there seems...

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