THE ANALSIS OF THE IMPACT OF UNEMPLOYMENT AND INFLATION ON BALANCE OF PAYMENT IN NIGERIA (1980-2010)

CHAPTER ONE

1. 0  INTRODUCTION

1.1     BACKGROUND

The major goals of macro-economic policy are: to achieve full employment in other words maintain a low and stable level of unemployment. To maintain a relative stable level of price payment position at a fixed stable exchange rate of growth.

Practically, inflation which is a persistence increase in general price level is one of the macro-economic problems facing Nigeria today. According to Ewa Udu and Agu G.A it began in Nigeria during and after the Nigeria civil war (that is from 1965-1970).Before the war, there was noticeable increase in the price of so many commodities such as a bag of 50cups of rice that cast #14.00 rises to #43.00 immediately after the civil war in 1970. Also there was an increase in the price of other goods and since 1979 the rate of inflation in Nigeria has been increasing.

Again, the Nigeria civil war (that is secessionist Biafra) was faced with hyperinflation. During that time everything was scarce relative to demand. This is because there was excess supply of money by the federal government in attempt to persecute the war with few available goods. More so inflation has been a scarce of concern to the government and something that was to be abided absolutely at any cost, because it is one of the worst imaginable social evil in a society.

However, there have been observed period of unemployment in Nigeria until 1930’s when the classical economist theory which propound that the demand for labor will also be equal to the supply of the labour at the prevailing money wage rate, as this theory collapsed, due to the depression of the 1930’s government has lend to accept periods of unemployment as inevitable. Since independence in 1960 and in mid of 1980’s unemployment have been viewed as one of the most untreatable problem facing the Nigeria economy up till today. It assumes alarming dimension with the emergence of graduate unemployment. As a result of this, the government has made many attempts at achieving full employment through their various policies.

Nigeria economy has undergone strains and stresses in their balance of payment since the collapse of the oil boom in early 1980’s. During that time, Nigeria export was mainly crude oil which grew steadily from 1975 and reached a peak in 1980, the import grew faster, bringing about a growth deficit in the visible trade balance. Also the production and consumption patterns that emerged from, the era of the oil boom could not be sustained in the face of declining export or foreign exchange and inflation resulted from the heavy borrowing by the civilian administration, this made the balance of payment, capital account balance to reduce to degree of deficit which leads to low external reserve. Furthermore inflation is generally used to describe a situation of rapid persistence and unacceptable increase in general price level in any economy which brings about decrease in the value of currency.

Also Lerner (1949: pg 27) describe inflation as an excess of demand over supply. Again Solow (1970) sees inflation as going on when one needs more and more money to buy some representative bundle of goods and services meaning that inflation is a part of the adjustment process between two equilibrium. However it is not every rise in price that is being regarded as inflation but a persistent rise in aggregate price of goods and services; this is because price may be rise to support a higher level of aggregate welfare.

The main reason for allowing inflation is because it allows for substantial redistribution of income and wealth from savers to borrowers that is from those who cannot protect themselves from the rise in the price of what they buy by...

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