HUMAN CAPITAL DEVELOPMENT AND ECONOMIC GROWTH IN NIGERIA: THE EFFECT OF GOVERNMENT EDUCATION EXPENDITURE

Abstract

Inspired by the human capital theory, this paper seeks to answer the question of whether Nigeria's economic growth has been boosted by the government's investment in education from 1990 to 2023. Education's share of government spending is the independent variable, while GDP per capita growth is the dependent variable. The variables under consideration are of various orders of integration and hence the authors resort to the Autoregressive Distributed Lag (ARDL) bounds testing approach to cointegration supported by the Error Correction Model (ECM) to capture the short-run adjustment. However, when these factors are taken into account, and GDP per capita growth is regressed on education spending as a share of GDP, a clear long-run relationship is observed, with education spending's coefficient of 0.48: for every 1 percentage point increase in education spending as a share of GDP, the GDP per capita grows by approximately 0.48 percentage points over time. The error correction term (−0.48) means that approximately 48% of the difference from that equilibrium is corrected within a year. These estimates are robust under a typical battery of tests of serial correlation, heteroskedasticity, functional form, and parameter stability. Based on these findings, the paper calls for a change in Nigeria's approach to education spending to meet the UNESCO target of 15-20% of government expenditure on education to derive more benefits from education as a tool for human capital development and inclusive growth.