Financial Inclusion, Unemployment, Poverty and Public Debt Dynamics in Nigeria: Evidence from Cointegration and Vector Error Correction Model

Abstract

This study examines the long-run relationships and short-run adjustment dynamics among financial inclusion, unemployment, poverty, and public debt in Nigeria using annual time series data spanning 1990 to 2023. Given the non-stationary nature of the variables, the analysis employs the Augmented Dickey–Fuller unit root test, Johansen cointegration technique, Fully Modified Ordinary Least Squares (FMOLS), and Vector Error Correction Model (VECM) within a multivariate time-series framework. The results confirm that all variables are integrated of order one and exhibit a stable long-run equilibrium relationship. The FMOLS estimates indicate that financial inclusion and public debt are negatively associated with unemployment in the long run, while poverty is positively associated with unemployment. The VECM results further reveal the presence of short-run adjustment dynamics toward the long-run equilibrium following temporary shocks. These findings highlight the interconnected nature of financial inclusion, fiscal conditions, and social welfare indicators in shaping labour market outcomes. The study contributes to the literature by providing a unified empirical framework that captures both equilibrium relationships and dynamic adjustments among key macroeconomic variables in Nigeria. Policy implications should be interpreted within the context of long-run macroeconomic coordination rather than direct causal effects, particularly with respect to financial inclusion strategies, debt management, and poverty reduction efforts.