Institutional Quality, Human Capital Development and Poverty Level in Nigeria (1981-2021)

Abstract

This study examined the interactive effects of institutional quality and various component of human capital development on poverty level in Nigeria between the periods of 1981 to 2020. Employing the autoregressive distributed lag (ARDL) bound testing method of co-integration. The results reveal noteworthy patterns. Firstly, when assessing the impact of institutional quality (PCA_INQ) on its own, it is observed to show a positive and statistically significant relationship on poverty levels, both in short run and long run at p-value of 5% and 10% respectively. However, the situation changes when institutional quality is interacted with variables representing various component of human capital development. Specifically, the interaction terms such as the interaction of institutional quality with capital expenditure on education (INQ*CEE), the interaction of institutional quality with recurrent expenditure on education (INQ*REE), interaction of institutional quality with capital health expenditure(INQ*CHE), and interaction of institutional quality with recurrent health expenditure(INQ*RHE) revealed no statistically significant effects on poverty levels in both the short and long run, except for interaction of institutional quality with recurrent health expenditure (INQ*RHE) which shows a significant effect on poverty only in the short run. The results affirmed that both education and health human capital development proxy by their disaggregated expenditures on both sectors and institutional quality has the potential to mitigate poverty levels in Nigeria over both short and long periods. However, it is essential to note that these expected effects have not yet fully materialized. Furthermore, the study also establishes that physical capital contribute positively to economic growth in Nigeria both in short-run and long-run. In conclusion, this study has revealed the important of considering the interactive effects of institutional quality and various components of human capital development in the context of poverty level in both short run and long run.