GLOBAL UNCERTAINTY AND UNEMPLOYMENT RATE IN THE UK AND NIGERIA: TRIGGER OF REGIME CHANGE AND ITS IMPLICATIONS FOR POLICY ANALYSIS
Keywords:
Unemployment rates, Economic fluctuations, Nigeria, United Kingdom
Abstract
This study applies a threshold regression model to explore the impact of uncertainty on unemployment in Nigeria and United Kingdom with data from 1970 to 2021. The empirical results show a significant threshold effect of uncertainty on unemployment. The threshold effect estimated value of global uncertainty on unemployment is significantly higher in Nigeria than in the UK. The trigger estimated value for Nigeria and the UK are 0.421 and 0.093 respectively. However, the impact differs in magnitude. While below the threshold value of 0.093, the impact is higher in the UK than in Nigeria, but the reverse holds beyond this threshold. This presupposes the role and impact of sturdy policy formulation and implementation between the two countries. Unemployment rate is lower in the UK than in Nigeria. Finally, the relationship between global uncertainty and unemployment is linear for Nigeria and positive. However, a non-linear and inverted U-shape relationship was confirmed for the UK. It becomes imperative to build world uncertainty into government future policies formulation if the impacts of vagaries of uncertainty on macroeconomic stability and business cycle fluctuations would be mitigated.
References
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Van Robays, I. (2016). Macroeconomic uncertainty and oil price volatility. Oxford Bulletin of Economics and Statistics, 78(5), 671-693
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Watugala, S. W. (2019). Economic uncertainty, trading activity, and commodity futures volatility. Journal of Futures Markets, 39(8), 921-945.
Wensheng, K., Ratti, R., & Vespignani, J. (2017). Impact of global uncertainty on the global economy and large developed and developing economies. Tasmanian School of Business and Economics University of Tasmania Discussion Paper Series N 2017-01 retrieved from https://www.utas.edu.au/__data/assets/pdf_file/0006/959829/The-Impact-of-Global-uncertainty-the-global-economy.pdf
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Ahir, H., Bloom, N., & Furceri, D. (2022). The world uncertainty index (No. w29763). National bureau of economic research. https://www.aeaweb.org/conference/2023/program/paper/RkheFFTi
Aloui, R., Gupta, R., & Miller, S. M. (2016). Uncertainty and crude oil returns. Energy Economics, 55, 92-100.
Angelini, G., Costantini, M., & Easaw, J. Z. (2018). Uncertainty and spillover effects across the Euro area (No. E2018/15). Cardiff Economics Working Papers.
Arellano, C., Bai, Y., & Kehoe, P. J. (2019). Financial frictions and fluctuations in volatility. Journal of Political Economy, 127(5), 2049-2103.
Babalola, S. J., Saka, J. O., & Adenuga, I. A. (2013). The validity of Okun's law in Nigeria: A difference model approach. Asian Economic and Financial Review, 3(12), 1598.
Bachmann, R., & Bayer, C. (2013). ‘Wait-and-See’business cycles?. Journal of Monetary Economics, 60(6), 704-719.
Bakas, D., & Triantafyllou, A. (2019). Volatility forecasting in commodity markets using macro uncertainty. Energy Economics, 81, 79-94.
Baker, S.R., Bloom, N., and Davis. A.J., (2016). “Measuring Economic Policy Uncertainty Quarterly Journal of Economics 131 (4): 1593–1636.
Balakeffi, L. R., Oboh, V., Augustine, U., & Fwangkwal, M. P. (2019). Uncertainties in Global Economic Policy and Nigeria's Export Earnings. International Journal of Business, Economics and Management, 6(1), 23-38.
Balcilar, M., Gupta, R., Kim, W. J., & Kyei, C. (2019). The role of economic policy uncertainties in predicting stock returns and their volatility for Hong Kong, Malaysia and South Korea. International Review of Economics & Finance, 59, 150-163.
Basu, S., & Bundick, B. (2017). Uncertainty shocks in a model of effective demand. Econometrica, 85(3), 937-958.
Bibow, J. (2013). Keynes on monetary policy, finance and uncertainty: Liquidity preference theory and the global financial crisis. Routledge.
Bloom, N. (2009), ‘The Impact of Uncertainty Shocks’, Econometrica 77, 623–685.
Caggiano G. Castelnuovo E and Groshenny N, (2014), Uncertainty shocks and unemployment dynamics in U.S. recessions, Journal of Monetary Economics, 67, (C), 78-92
Davis, S. J. (2016). An index of global economic policy uncertainty (No. w22740). National Bureau of Economic Research.
Edeme, R. K., Emeka, E. T., & Ogbuabor, J. E. (2024). Global Uncertainty, Climate Change and the Unemployment-Economic Growth Relationship in Nigeria. Journal of Development Policy and Practice, 0(0). https://doi.org/10.1177/24551333231208296
Ferrari-Filho, F., and Octavio A. C. (2005) "The concept of uncertainty in Post Keynesian theory and in institutional economics." Journal of Economic Issues, vol. 39, no. 3, 2005, p. 579+. Gale Academic OneFile, Accessed 30 May 2021.
Folawewo A.O and Adeboje, O.M. (2017). “Macroeconomic Determinants of
Unemployment: Empirical Evidence from Economic Community of West African
States” African Development Review, African Development Bank, vol. 29(2), pages 197—210, June
Fontaine, I., Razafindravaosolonirina, J., & Didier, L. (2018). Chinese policy uncertainty shocks and the world macroeconomy: Evidence from STVAR. China Economic Review, 51, 1-19.
Fontanari, C., Palumbo, A., & Salvatori, C. (2020). Potential output in theory and practice: A revision and update of Okun's original method. Structural Change and Economic Dynamics, 54, 247-266.
Hansen, B. E. (1999). Threshold effects in non-dynamic panels: estimation, testing, and inference, Journal of Econometrics, 93, 334-368.
Hansen, B. E. (2000). Sample splitting and threshold estimation. Econometrica, 68(3), 575-603
Hidalgo, J., Lee, J., & Seo, M. H. (2019). Robust inference for threshold regression models. Journal of Econometrics, 210(2), 291-309.
International Labour Organisation. (2021) ILOSTAT https://ilostat.ilo.org/
International Monetary Fund. (2012). Coping with high debt and sluggish growth. World Economic Outlook. World Economic and Financial Survey.
Ji, Q., Liu, B. Y., Nehler, H., & Uddin, G. S. (2018). Uncertainties and extreme risk spillover in the energy markets: A time-varying copula-based CoVaR approach. Energy Economics, 76, 115-126.
Jurado, Kyle, Sydney C. Ludvigson, and Serena Ng. 2015. "Measuring Uncertainty." American Economic Review, 105 (3): 1177-1216.
Kandoussi M. and Langot F. (2020). Uncertainty Shocks and Unemployment Dynamics Discussion Paper Series. IZA – Institute of Labor Economics. IZA DP No. 13438.
Kang, W., Ratti, R. A., & Vespignani, J. (2020). Impact of global uncertainty on the global economy and large developed and developing economies. Applied Economics, 52(22), 2392-2407.
Kurov, A., & Stan, R. (2018). Monetary policy uncertainty and the market reaction to macroeconomic news. Journal of Banking & Finance, 86, 127-142.
Liu, G., & Zhang, C. (2020). Economic policy uncertainty and firms' investment and financing decisions in China. China Economic Review, 63, 101279.
National Bureau of Statistics (2020) Labor Force Statistics: Unemployment and Underemployment Report (Q4 2020) Retrieved from https://nigerianstat.gov.ng/elibrary/read/1238
Office of National Statistics: (2021). UNEM04: Unemployment rate retrieved from https://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/unemployment/timeseries/mgsz/lms ".
Ozturk, E. O., & Sheng, X. S. (2018). Measuring global and country-specific uncertainty. Journal of international money and finance, 88, 276-295.
Petrosky-Nadeau, N., Zhang, L., & Kuehn, L. A. (2018). Endogenous disasters. American Economic Review, 108(8), 2212-2245.
Pizzinelli, C., Theodoridis, K., & Zanetti, F. (2020). State dependence in labor market fluctuations. International Economic Review, 61(3), 1027-1072.
Schaal E., (2017) “Uncertainty and Unemployment”, November 2017, Econometrica, Vol.85, No.6, pages1675-1721.
Sen, S. (2020). Investment decisions under uncertainty. Journal of Post Keynesian Economics, 43(2), 267-280.
Shinohara T., Okuda T and Nakajima, J (2020). “Characteristics of uncertainty Indices in the Macroeconomy” Bank of Japan Working Paper Series 20-E-5, Bank of Japan.
Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016Measuring Economic Policy. " Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 131(4), pages 1593-1636.
Van Robays, I. (2016). Macroeconomic uncertainty and oil price volatility. Oxford Bulletin of Economics and Statistics, 78(5), 671-693
Wang, G. J., Xie, C., Wen, D., & Zhao, L. (2019). When Bitcoin meets economic policy uncertainty (EPU): Measuring risk spillover effect from EPU to Bitcoin. Finance Research Letters, 31.
Watugala, S. W. (2019). Economic uncertainty, trading activity, and commodity futures volatility. Journal of Futures Markets, 39(8), 921-945.
Wensheng, K., Ratti, R., & Vespignani, J. (2017). Impact of global uncertainty on the global economy and large developed and developing economies. Tasmanian School of Business and Economics University of Tasmania Discussion Paper Series N 2017-01 retrieved from https://www.utas.edu.au/__data/assets/pdf_file/0006/959829/The-Impact-of-Global-uncertainty-the-global-economy.pdf
World Bank(2021), Youth Unemployment Rate for Nigeria [SLUEM1524ZSNGA], retrieved from
Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/SLUEM1524ZSNGA, August 19, 2021.
Yi, Su; Xiao-li, An (2018). Application of threshold regression analysis to study the impact of regional technological innovation level on sustainable development. Renewable and
Sustainable Energy Reviews, 89(), 27–32. doi:10.1016/j.rser.2018.03.005
Published
2024/11/13
Section
Original Scientific Paper
