Financial Integration, Employment and Wages Nexus: Evidence from Nigeria

This study investigates the impact of financial integration on wages and employment in Nigeria through the channels documented in the literature. The Autoregressive Distributed Lags is used to examine the long-run relationship. The Structural Vector Autoregressive is used to estimate the shock impact, while the Granger Non-causality was used to investigate the causal effects. The findings reveal the existence of long-run relationship when employment is used as a dependent variable and no long-run relationship when wage is used. In the long-run, employment is negatively statistically significant with financial integration, conforming to the proposition of Lucas Paradox. Evidence from the forecast error shock shows that financial integration shock shows more variations in employment more than the wage. The causality test results revealed no causal relationship between financial integration and wage, but unidirectional relationship from financial integration to employment; this follows the supply-leading view. The implication of the findings is that financial integration leads to weaken competitiveness of Nigeria economy and causes it to be more vulnerable to capital reversal, which may endanger employment in the long-run. The study suggested the development of domestic policies measures such as capital controls to be designed to shape the composition of inflows, among others to improve the situation.