The Impact of Government Sectorial Capital Expenditure on Unemployment and Inflation in Nigeria

Abstract

Maintaining stable and favorable macroeconomic outcomes has been a persistent challenge for governments, particularly in developing countries like Nigeria, where past public spending has often yielded underwhelming results. This research examined the impact of government capital expenditure in selected sectors of the economy on major macroeconomic variables—namely inflation and unemployment rates—covering the period from 1986 to 2023. Particular attention is given to public capital spending on education, healthcare, agriculture, electricity, and road infrastructure. Data for the analysis were obtained from the Central Bank of Nigeria (2024), the National Bureau of Statistics (2023), and the World Development Indicators (2021). Applying the Autoregressive Distributed Lag (ARDL) approach, the findings indicate that, in the long-run government investment in agriculture, education, and health significantly enhanced unemployment, whereas inflation was influenced mainly by agriculture and electricity. The findings underscore the need for a strategic shift in public investment policies, emphasizing effective allocation and efficiency over sheer spending, with targeted investments in productive sectors to curb inflation, and employment-sensitive projects to reduce unemployment, complemented by integrated infrastructure, social, and labor-market policies to support sustainable economic development.