A decomposition analysis of the nexus between employment and credit in West Africa’s biggest economies

The World Economic Forum in 2014 reports that persistent jobless growth is one of the topmost challenges the globe faces. International Labour Organisation (ILO) data indicates that Ghana’s employment elasticity of output has been fallen since 1992; from 0.76 in 1992-1999 to 0.5 since 2006. This trend implies that from 1992, the ability of the Ghanaian economy to create jobs as it grows has been shrinking. Similarly, estimates show that Nigeria’s output elasticity of employment averages 0.39% across all sectors. Through decomposition, this paper investigates the nexus between credit and employment with the view to answering the following questions. i. How does economic activity impact employment creation in developing countries like Ghana and Nigeria? ii. How does credit intensity impact employment creation? iii. How important is sectoral credit mix to creating employment? And iv. Should sectoral employment factor guide credit extension? The results for both countries show that total change in employment consequent on credit availability has been positive. However, the adoption of credit as a trigger for employment creation must not only be intensified but also deliberately targeted at the sectors of the economy that offer the greatest potential for job creation.