Examining the relationship between government size and unemployment: Evidence from Economic Community of West African States (ECOWAS)

This paper examines the relationship between government size and unemployment in the Economic Community of West African States between 1991 and 2021. The Keynesian theory was used as the basis, and panel cointegration techniques of DOLS, FMOLS, and CCR were employed to ascertain the nature of the relationship. The variables used in this study were unemployment rate, general government consumption expenditure, government investment expenditure, FDI, inflation, GDP per capita growth, and population growth. The findings reveal a statistically significant positive relationship between government size and unemployment in the ECOWAS region. This indicates that expansionary fiscal policies, often advocated by Keynesians, are ineffective in addressing the high levels of unemployment in ECOWAS. The results suggest that the unemployment rate tends to rise as government size expands. However, the relationship between government investment spending and unemployment is negative, meaning a more significant government investment expenditure is likely to reduce unemployment. While population growth shows a strong positive relationship, FDI, Inflation, and GDP per capita growth illustrate weak relationships. In contrast, the relationship between government size and unemployment is negative in the WAEMU region, whereas it manifests a positive correlation in WAMZ. Government investment expenditure, FDI, inflation, GDP per capita growth, and population growth demonstrate weak and inconclusive relationships when WAEMU and WAMZ regions are compared. Consequently, governments within the ECOWAS region should strongly consider reducing the size of their government as a crucial mechanism for addressing the unemployment challenges. Additionally, it is imperative for governments to actively pursue strategies aimed at promoting investment in critical sectors of the economy and prioritize redirecting unnecessary government consumption spending towards labor-reliant public investments as an additional means to tame the rising unemployment rates.