This study examines the relationship between government investment in human capital and economic growth in Nigeria between 1981 and 2023, as mediated by institutional quality. Specifically, the study uses the Dynamic Autoregressive Distributed Lag (D-ARDL) approach to evaluate the roles of public expenditure on education and health, governance quality, and gross capital formation. The augmented Dickey-Fuller test confirmed stationarity of the time series at first difference. The Bai-Perron and Chow tests identified structural breaks and the ARDL bounds test established a long-run relationship between the variables. The results reveal a stable long-term equilibrium between investment in human development and economic growth. Health expenditure has a positive and significant long-term effect on GDP, which supports the hypothesis of health-led growth. Education expenditure has a positive effect over time, indicating that the benefits of education spending are realized gradually. However, the interaction terms reveal that the effectiveness of health and education spending hinges critically on institutional quality. Poor governance can undermine or even reverse the growth-enhancing effects of public spending. Institutional quality itself is found to significantly influence growth dynamics. The findings suggest that human development is not only an outcome of economic expansion, but also a driver of long-term growth in Nigeria’s economy. The study concluded that sustained growth required increased and efficient investment in the social sector, supported by strong institutions that promote accountability, transparency, and policy stability.
Awuna et al. (Fri,) studied this question.