Moderating effect of market sophistication and political stability on the relationship between entrepreneurship and unemployment in Nigeria’s emerging market

Purpose This study aims to address the overlooked roles of market sophistication and political stability in the entrepreneurship–unemployment relationship, focusing on Nigeria’s emerging economy. It explains why entrepreneurship has not reduced unemployment, critiques existing policies and enriches the Schumpeter and refugee effects debate, offering valuable economic development and policy improvement insights. Design/methodology/approach This study used a quantitative research method. Macroeconomic data on Nigeria from 2006 to 2023 were extracted from the World Bank’s World Development Indicators, World Economy, World Intellectual Property Office and the Global Innovation Index. Theory-driven ordinary least squares (OLS) regression was used to test the formulated hypotheses and predict the direct and moderating relationships between the variables. Findings The four OLS estimates support the Schumpeter effect (a positive relationship between new business creation and unemployment) but do not confirm the refugee effect, as there is no significant relationship between unemployment and business creation. This study also suggests that the effect of market sophistication on the relationship between new business creation and unemployment is limited compared to political instability, which significantly affects the relationship between unemployment and entrepreneurship. Research limitations/implications This single-country study does not claim to have fully resolved all the debates surrounding the Schumpeter effect versus the refugee effect in emerging markets. Therefore, the generalizability of its findings is limited to Nigeria. Practical implications This study advanced the understanding of how political stability and market sophistication moderate the entrepreneurship–unemployment nexus. This study enriches the Schumpeter and refugee effects literature by demonstrating their varying influence in Nigeria’s context. The findings guide policymakers and entrepreneurs to prioritize political stability, enhance human capital and address market readiness to foster sustainable entrepreneurship. These insights inform strategies to reduce unemployment by aligning entrepreneurship policies with socio-political dynamics and tailoring interventions to emerging economies’ unique challenges. Originality Value To the best of the authors’ knowledge, this study is the first to provide empirically and theoretically sound insights into the effect of market sophistication and political stability on the bidirectional relationship between entrepreneurship and unemployment in emerging markets. It unveils why entrepreneurship may fail to reduce unemployment through new business creation (Schumpeter effect) and vice versa (refugee effect).