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Asian Business Research Journal 
Vol. 10, No. 10, 42-52, 2025 
ISSN: 2576-6759 
DOI: 10.55220/2576-6759.599 
© 2025 by the authors; licensee Eastern Centre of Science and Education, USA 

 
 

 

 
Assessing the Impact of Government Spending and Human Capital Development on 
Nigeria’s Economic Growth 

 
Raymond Osi Alenoghena1

 
Maryam Joyce Sadiq2 
Godwin Dele Imohi3 
Abayomi Oluwaseun Japinye4 
Fatai Oguntade Aliu5 
Segun Amos, Adewale6 
 

 
 

1Dept. of Economics, Caleb University, Imota Lagos, Nigeria. 
2Lagos State Ministry of Economic Budget, Planning and Statistics, Nigeria. 
3Caleb University Imota Lagos, Nigeria. 
4Banking Supervision Department, Central Bank of Nigeria. 
5Dept. of Business Administration, Trinity University, Yaba Lagos, Nigeria. 
6Department of Economics, Caleb University Imota, Lagos Nigeria. 
( Corresponding Author) 

 

 
Abstract 

Government spending is a vital instrument for steering economic progress, affecting various 
sectors, including healthcare, education, infrastructure, and welfare. This study examines the 
impact of government spending and human development on Nigeria's economic growth, spanning 
the period from 1989 to 2023. The study utilizes economic growth as the dependent variable, with 
government spending and human development as the independent variables. The control 
variables included in the analysis are inflation, trade openness, population, and infrastructure. The 
dynamic Ordinary Least Squares (DOLS) approach is employed for data analysis, as it offers an 
improvement over the basic ordinary least squares model, since the study variables do not require 
any transformation to achieve a normal distribution. The findings reveal that government 
spending has a negative and significant impact on economic growth. Although the effects of 
human development on economic growth are positive, they are not statistically significant. 
Moreover, government spending negatively and significantly impacts human development. The 
combined effects of government spending and human development are not significant in 
influencing economic growth. The study recommends that the Nigerian government increase its 
budget for education and health to align with global trends. Additionally, the educational 
curriculum should be regularly reviewed to incorporate emerging trends in international and 
industrial developments. 

 
Keywords: Dynamic ordinary least squares (DOLS), Economic growth, Government spending, Human development, Inflation. 

 
1. Introduction 

Nigeria, the most populous and one of the largest economies in Africa, has a complex existence characterised by 
vast natural resources but persistent economic challenges, including poverty, inequality, and underdevelopment. 
Understanding the factors that contribute to this economic dichotomy is crucial for policymakers and scholars 
alike. Significantly, two factors highlighted in the discourse surrounding Nigeria's economic growth are 
government spending and human development. This research aims to explore the relationship between these 
factors, examining how government expenditures can drive human development, which in turn contributes to 
sustainable economic growth. 

Government spending is a vital instrument for steering economic progress, affecting various sectors, including 
healthcare, education, infrastructure, and welfare. The expenditure choices made by the government can either 
stimulate growth or hinder it, particularly in a developing economy like Nigeria, where endemic inefficiencies and 
corruption can impede the effective allocation of resources. Moreover, human development, often measured by 
indices such as life expectancy, educational attainment, and standard of living, is increasingly recognised as a 
fundamental component of economic development. Contemporary economic theories emphasise that a well-
educated and healthy populace is more capable of innovation and productivity, thus spurring economic growth. 

Human development can play a vital role in driving the growth and development of a nation, as it has the 
capacity to improve the productivity of firms and government services. This is because the potential and skills of 
workers are enhanced through education and various skills development exercises. The concept, popularised by the 
United Nations Development Programme (UNDP) through the Human Development Index (HDI), emphasises 
that, in addition to income growth, human development is also about improving a person's education, health, and 

https://doi.org/10.55220/2576-6759.599


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overall welfare. Some authors have argued that nations with the highest levels of human development skills have 
developed faster than those with low levels of these skills (Kuzminov et al., 2019; Angrist et al., 2021).   

A better-educated workforce enhances efficiency in productivity, innovation and the capacity to facilitate and 
adapt to technological changes. With a skilled workforce, a nation can attract a greater inflow of foreign 
investment, drive industrial productivity, and compete on a global scale in terms of product quality and services. A 
nation's investment in health services improves the state of health of its citizens, thereby enhancing longevity and 
reducing the mortality rate of the labour force. A healthy labour force reduces absenteeism, increases productivity, 
and improves the income-earning capacity of workers. Moreover, human development raises the intellectual 
capacity of the labour force to be more creative in innovation and entrepreneurship, and enhances their capacity to 
be receptive to and apply new technological improvements. A knowledgeable citizen enhances the quality of a 
nation's institutions by providing services at both the firm and government levels, and by demanding 
accountability and better governance from the political authority.   

Taken together, government spending and human development are not isolated forces in the contribution to 
the growth and development of a nation. The two variables can be effectively combined to create a synergistic 
effect that accelerates and sustains the nation's long-term growth and development. The interactive effects of 
government spending and human development arise when government spending is directed towards key sectors of 
the economy, which in turn further boost human development and increase the productivity of businesses and the 
government, ultimately enhancing a nation's growth and development. For instance, government investment in 
schools, health, and infrastructure raises the level of worker productivity, governance capacity, and innovation in 
the country. Government spending improves the level of aggregate demand and encourages higher-quality 
spending from the people. As output expands, it generates additional revenues for the government. It stimulates 
further investment in human capital, thereby enhancing the nation's capacity for output growth and creating the 
conditions for long-term development.   

This research study examines the contributions of government spending and human development to Nigeria's 
economic growth. At the same time, several authors have investigated the impact of government spending on 
economic growth (Tammar, 2021; Castillo et al., 2022; Buthelezi, 2023; Okunola et al., 2024). Several other 
empirical studies have been conducted on the relationship between human development and economic growth 
(Awogbemi, 2023; Raj et al., 2024; Alenoghena et al., 2025; Puttitanun & Lerskullawat, 2025). However, studies on 
the combined effect of government spending and human development on economic growth are scarce in the 
literature. The lacuna in the dearth of literature on the combined effect of government spending and human 
development on economic growth constitutes the gap that this study attempts to fill. Accordingly, this study has 
the following specific objectives: one, to examine the impact of government spending on economic growth in 
Nigeria; two, to investigate the effect of human development on economic growth; three, determine the impact of 
government spending on human development; four, to evaluate the interactive effect of government spending and 
human development on economic growth and; five, to determine the long-run equilibrium status among the 
variables of study.  

Given Nigeria's unique geographical, social, and historical context, it is imperative to assess how government 
spending and human development can be optimised to yield realistic economic growth for the economy. By 
focusing on established theoretical paradigms and available empirical evidence, this research aims to foster a deeper 
understanding of the interplay between these factors, offering insights and recommendations for future policies 
that can enhance Nigeria's economic trajectory. The scope of this study encompasses the period from 1990 to 2023.  

The remaining sections in this study are divided as follows: Section two covers a review of the conceptual and 
empirical literature. Section three focuses on the study's methodology, while Section four concerns the analysis of 
the data. Section five presents the study conclusions and policy recommendations.     
 

2. Literature Review 
2.1. Theoretical Literature Review 

The theoretical literature surrounding the roles of government spending and human development in economic 
growth is well-established but remains particularly poignant in the context of developing economies. Several 
economic theories elucidate the significance of these variables, with the Keynesian Theory of Fiscal Deficit and the 
Human Capital Development Theory being paramount. 

Keynesian Economics posits that government spending plays a crucial role in economic activity, particularly 
during recessions. According to Keynesian principles, increased government expenditure can boost aggregate 
demand, which subsequently leads to higher levels of employment and income. The Keynesian theory argues that 
increased government spending raises the level of aggregate demand, stimulates improved output of goods and 
services, crowds in private investment and ultimately raises the level of economic growth (Alenoghena, 2022). In 
the context of Nigeria, where external shocks and internal inefficiencies often aggravate cyclical downturns, 
targeted government spending is crucial for economic stabilisation and growth. The work of Maynard Keynes has 
laid the foundation for understanding how effective fiscal policy can stimulate economic activity, suggesting a 
direct link between government outlays and growth rates. 

Moreover, the Human Capital Theory, as explained by economists like Gary Becker (Human Capital, A 
Theoretical and Empirical Analysis, 1964 and Theodore Shultz (Investment & Human Capital, 1961), emphasises 
the significance of investing in human capital—education, health, and skills—as a pathway to enhancing 
productivity and economic performance. The human capital development theory posits that public sector 
investment in a worker's education, training, skills, and health promotes their productivity, work attitude, 
efficiency, and earning capacity. Hence, a well-implemented policy on human capital development leads to increased 
economic growth and development for both individuals and nations. The key aspects of human capital development 
include regarding education as an investment, improving workforce capabilities, and fostering a more innovative 
and productive economy through the accumulation of knowledge and abilities. Nigeria, with a high population of 
uneducated and underemployed citizens, indicate an immense potential for growth and development, which is often 
frustrated by a lack of investment in human capabilities. Japinye et al. (2025) underscore this need for human 



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capital investment as a fundamental precondition for the country's economic advancement. Government public 
sector policies aimed at fostering education and health services are not merely social welfare initiatives but 
essential components of a financial strategy to improve the  

The theories interlink in a manner that suggests an effective government stance on spending should prioritise 
sectors that directly influence human development. Economists have documented cases where countries with 
higher investments in health and education enjoy faster rates of GDP growth. In Nigeria, the challenge remains in 
translating theoretical principles into practical action. 
 

2.2. Empirical Literature Review 
The empirical literature review is discussed in terms of the relationships between government spending and 

economic growth, as well as between government spending and human development. 
 

2.2.1. Relationship Between Government Spending and Economic Growth 
The discussion on the relationship between government spending and economic growth yields three strands of 

literature. First, empirical studies suggest a positive relationship between the variables (Bakare et al., 2016; 
Nwakobi et al., 2018; Biplob, 2019; Wahyudi, 2020; Chandana, 2020; Tammar, 2021; Okunola et al., 2024). The 
proponents of a positive relationship between government spending and economic growth favour the Keynesian 
theory of fiscal deficit. The Keynesian Theory posits that government spending increases aggregate demand, which 
in turn enhances the level of economic activity and stimulates private investment. The second strand of literature 
believes that government spending has a negative relationship with economic growth and crowd-out private 
investment (Shetta & Kamaly, 2014; Hussain et al., 2015; Saibu & Alenoghena, 2017; Oladele et al., 2017; Tung, 
2018; Akamobi & Unachukwu, 2021; Castillo et al., 2022; Buthelezi, 2023). The authors in support of a negative 
relationship between government spending and economic growth belong to the classical school of thought who 
believe that government involvement in economic activity adversely impacts on the economy and crowd out 
private The third strand of empirical studies on the relationahip between government spending and economic 
growth contend that the country's level of economic activity is indifferent to the changes in government spending 
These empirical studies in this section favour the Ricardian Equivalence Hypothesis (REH) and argue that 
households anticipate the level of taxation required for the changes in fiscal policy and hence smoothen their 
expenditures such that their pattern of consumption and total output does not respond to changes in government 

spending (Sunge et al., 2015; Abada, 2016; Ofori-Abebrese & Pickson, 2018; İkiz, 2020; Munir & Mumtaz, 2021: 

Isah et al., 2022; Rašković, 2023).  
 

2.2.2. The Relationship Between Human Development and Economic Growth 
An investigation into the results of empirical studies on the relationship between human development and 

economic growth reveals a positive relationship between the variables in all the studies examined (Altiner & 
Toktas, 2017; Rahman, 2020; Kuswanto, 2021; Sultana, 2022; Awogbemi, 2023; Raj et al., 2024; Alenoghena et al., 
2025; Puttitanun & Lerskullawat, 2025). The proponents of a positive relationship between human development 
and economic growth believe in the application of the Human Capital Development Theory. The theory argues 
that improvements in human capabilities (skills, health, income, and education) will enhance innovation and 
productivity, thereby fostering an increase in the level of economic activities. The authors argue that economic 
growth will generate the necessary resources to finance improved income, better health, enhanced skills and 
education, and a boost in overall economic welfare for the people. Therefore, the relationship between human 
development and economic growth creates a virtuous cycle, whereby progress in human development promotes 
progress in economic growth in a reinforcing manner, leading to a beneficial and sustainable outcome for the 
nation in the long run.  
 

2.2.3. The Relationship Between Government Spending and Human Development 
A positive relationship exists between government spending and human development (Akinyele et al., 2025; 

Rahmawati & Intan, 2020; Nurvita, 2022; Amalia et al., 2022; Goldani & Momeni, 2023; Bassey et al., 2023). 
Empirical studies that emphasise a positive relationship between government spending and human development 
suggest that the government may invest in education and health to build human capacity and improve the quality 
of life, thereby enhancing the Human Development Index (HDI). Additionally, increased government expenditure 
on capital projects has a positive impact on human income and welfare. Hence, the allocation of spending on social 
infrastructure and public services is vital for optimising the benefits for human development. The second strand of 
empirical literature confirms a negative relationship between government spending and human development 
(Olofin, 2020; Omodero, 2019; Abbah et al., 2025). The advocates of a negative relationship between government 
spending and human development argue that it occurs when a specific type of government spending, specifically 
related to administrative costs, can lead to diminished human development outcomes. On a standard scale, public 
investments in areas such as infrastructure, health, and education tend to have positive effects. This trend of a 
reverse relationship suggests inefficiency or corruption in the government's administrative function, leading to the 
diversion of resources that could have been used to enhance human development and the welfare of the people.  

The third strand of literature concerns empirical studies that have yielded mixed results regarding the 
relationship between disaggregated government spending and human development, or have found no relationship 
between the two (Onabote et al., 2023; Sasongko & Wibowo, 2022; Ruzima & Veerachamy, 2023; Nwokoye, 2017; 
Okafor, 2017). The empirical studies in this category were unable to identify a specific or categorical relationship 
between government spending and human development. 

2.3. Gaps in Empirical Literature 
The first gap in the literature concerns the inconclusive and contradictory results in the empirical relationship 

between government spending, human development, and economic growth (Amalia et al., 2022; Sasongko & 
Wibowo, 2022; Ruzima & Veerachamy, 2023). Some studies find a positive and significant relationship, indicating 
that improved government spending on education, health, and infrastructure enhances human capital accumulation 



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and long-run growth. Other studies on the subject, however, report weak, negative, or statistically insignificant 
effects, often attributing this to issues such as misallocation of resources, corruption, poor governance, or the 
crowding out of private investment. The second gap pertains to the non-interacted (synergistic) effect of 
government spending and human development on economic growth. The lacuna created by the second gap 
constitutes the central point to be sorted out in this research study.  
 

3. Methodology 
3.1. Research Design 

This study examines the impact of government spending and human development on Nigeria's economic 
growth. The Nigerian government is the largest spender in the country and can impact formal educational 
institutions, training institutes, and health facilities to improve the service contributions of human resources in the 
country. The improvements in human skills and work attitude will, in turn, enhance the quantity and quality of 
productivity in both the public and private sectors of the economy, thereby improving the level of economic 
growth. Additionally, government investment in infrastructure and other productive endeavours may also enhance 
the earning capacity and welfare of workers. The research design adopted for this study is an exploratory design 
that employs an Ex-Post Facto approach and a survey. Thus, the research study utilises secondary data secured 
from the Central Bank of Nigeria (CBN) and World Development Index (World Bank) data publications. The 
variables deployed for analysis in this study include economic growth (proxied by GDP per capita), government 
spending (GSP), human development (HDI), inflation (INFL), trade openness (TRADE), population (POPN), and 
infrastructure (IFRST). 
 

3.2. Model Specification 
The model deployed in this research study follows the model by Sultana et al. (2022) and Castillo et al. (2022). 

The model expresses Economic Growth (EG) as the dependent variable and Government Spending (GSP) and 
Human Development (HDI) as the explanatory variables. The control variables for the model include inflation 
(INFL), trade openness (TRADE), population (POPN) and infrastructure (IFRST). The variables are shown in 
equation (1) as follows:  

Economic Growth = f(Government Spending, Human Development, Inflation, Trade Openness, 
Infrastructure).  
The expression may be more compact in equation (1) shown as follows: 
 

EG = f(GSP, HDI, INFL, TRADE, POPN, INFRST)  (1) 
Equation (1) can be expressed further in the functional form: 

𝐸𝐺𝑡 = 𝛽0. (𝐺𝑆𝑃1𝑡)𝛽1 . (𝐻𝐷𝐼2𝑡)𝛽2 . (𝐼𝑁𝐹𝐿3𝑡)𝛽3 . (𝑇𝑅𝐴𝐷𝐸4𝑡)𝛽4 . (𝑃𝑂𝑃𝑁5𝑡)𝛽5 . (𝐼𝑁𝐹𝑅𝑆𝑇6𝑡)𝛽6   (2) 
For estimation purposes, equation 2 has to be log-linearised. The log-linearising process is necessary to configure 
the scales of the variables to streamline the data fluctuations. Therefore; 

𝐿𝑛𝐸𝐺𝑡 = 𝛽0 + 𝛽1𝐿𝑛𝐺𝑆𝑃1𝑡 + 𝛽2𝐿𝑛𝐻𝐷𝐼2𝑡 + 𝛽3𝐿𝑛𝐼𝑁𝐹𝐿3𝑡 + 𝛽4𝐿𝑛𝑇𝑅𝐴𝐷𝐸4𝑡 + 𝛽5𝐿𝑛𝑃𝑂𝑃𝑁5𝑡 + 𝛽6𝐿𝑛𝐼𝑁𝐹𝑅𝑆𝑇6𝑡 + 𝜇𝑡  
(3) 

Equation (3) may be utilized to investigate objectives one and two – the effects of government spending and human 
development on economic growth. Equation (2) will be recalibrated to resolve objective three as follows:  

𝐿𝑛𝐻𝐷𝐼𝑡 = 𝛽0 + 𝛽1𝐿𝑛𝐺𝑆𝑃1𝑡 + 𝛽2𝐿𝑛𝐸𝐺2𝑡 + 𝛽3𝐿𝑛𝐼𝑁𝐹𝐿3𝑡 + 𝛽4𝐿𝑛𝑇𝑅𝐴𝐷𝐸4𝑡 + 𝛽5𝐿𝑛𝑃𝑂𝑃𝑁5𝑡 + 𝛽6𝐿𝑛𝐼𝑁𝐹𝑅𝑆𝑇6𝑡 + 𝜇𝑡  
(4) 

Equation (4) is configured to assess the effect of government spending on human development 

𝐿𝑛𝐸𝐺𝑡 = 𝛽0 + 𝛽1𝐿𝑛𝐺𝑆𝑃1𝑡 + 𝛽2𝐿𝑛𝐻𝐷𝐼2𝑡 + 𝛽3𝐿𝑛𝐺𝑆𝑃 ∗ 𝐻𝐷𝐼3𝑡 + 𝛽4𝐿𝑛𝐼𝑁𝐹𝐿4𝑡 + 𝛽5𝐿𝑛𝑇𝑅𝐴𝐷𝐸5𝑡 + 𝛽6𝐿𝑛𝑃𝑂𝑃𝑁6𝑡 +
𝛽7𝐿𝑛𝐼𝑁𝐹𝑅𝑆𝑇7𝑡 + 𝜇𝑡  (5) 

Equation (5) is designed to determine the interacted effects of government spending and human development on 
economic growth in Nigeria. 

Where 𝛽0, 𝛽1, 𝛽2 , 𝛽3, 𝛽4, 𝛽5, 𝛽6 & 𝛽7  are the coefficients to be estimated in the models and 𝜇𝑡is the stochastic error 
term. 

Furthermore, the apriori expected signs of the coefficients are 𝛽1 > 0, 𝛽2 > 0, 𝛽3 > 0, 𝛽4 < 0, 𝛽5 > 0, 𝛽6 <
0 & 𝛽7 > 0. Therefore, the parameter 𝛽′ > 0 implies a positive relationship between the dependent and the 

explanatory variables. Also, 𝛽′ < 0 indicates a negative relationship between the dependent and explanatory 
variables. 
 

3.3. Sources of Data and Variable Definition 
The study uses annual time series data with 34 observations from 1989 to 2023. Thus, the data's primary 

sources are the Nigerian Central Bank's statistics report and the World Bank Development Indicators, 2022. 
 

 
 
 
 
 
 
 

 
 
 
 
 
 

 



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Table 1. Variable Definition and Measurements. 

Variable Full Name  Measurement Source 

EG Economic Growth GDP per capita refers to the gross domestic product (at constant prices) 
divided by mid-year population 

WDI 

GSP Government 
Spending 

Federal government spending refers to the total expenses incurred by 
the federal government to execute its functions and 
responsibilities. Some examples are defense, education, healthcare and 
infrastructure.   (Taken as a ratio of GDP) 

CBN 

HDI Human 
Development 
index 

HDI measures the contributions of formal education, new skills, 
training and income to the employee’s productivity. It is an index that 
ranges between zero and one to indicate the productivity capacity of an 
ideal employee who enjoys full health and with a good educational 
standard. 

 
WDI 

INFL Inflation The inflation rate on the consumer price index estimates the annual 
percentage change in cost to the average consumer in terms of 
purchasing a basket of goods and services annually. The Laspeyres 
formula is used  

WDI 

TRADE Trade Openness The addition of exports and imports together divided by the GDP and 
taken as a percentage. It indicates the degree of trade liberalization. 

WDI 

POPN Population  Population Growth Rate:  The average annual change in the size of a 
population. It is expressed as a percentage and reflects the overall 
change in individuals due to changes in births, deaths, immigration, and 
emigration. 

WDI 

INFRST Index for 
Infrastructure 

Principal Component Analysis estimation of an index comprising Air 
and Road Transport, Fixed Telephone and Energy use. 

CBN 

Source: Compiled from WDI and CBN Reports (2023). 

 

3.4. Analytical Framework   
This research employs the Dynamic OLS (DOLS) approach for data analysis. The DOLS is firmly entrenched 

in the Fully Modified OLS (FMOLS) as an estimator that utilises a semi-parametric correction method to address 
the inherent challenges associated with the long-run association of the stochastic regressors that often arise in the 
assessment of a long-run equilibrium cointegrating framework. The FMOLS estimator is a characteristically 
unbiased approach that provides optimal estimates in developing the cointegrating regression methodology. 
Additionally, the procedure incorporates the attribute of combining efficiency with the normalised asymptotic, 
allowing for the basic Wald tests while utilising the standard statistical inference procedure of the Chi-square 
approach. Consequently, the expanded framework of the DOLS streamlines the groundwork for the assessment of 
the asymptotic attribute of the FMOLS in replications that merge regressors with the volatile order of integration, 
like regressors with characteristics of being stationary at level [I(0)] with those that are stationary at first 
difference [I(1)].The cointegrating regression method deploys the initial estimates of a symmetric long-run 

covariance matrice of the error term. Suppose  is the set of residuals attained after assessing Equation 4, 

then  can be obtained incidentally and acknowledged as  in the course of the regression analysis. 

 

(4) 

r may be obtained from the simulated regression analysis procedures. Hence, we can generate equation (5) in the 
order: 

 

(5) 

If we declare  and  as the long-run of the associated covariance matrices that is estimated while applying the 

error term residuals , then we can present the adjusted data in the form of equation (6) as 
follows: 

 

(6) 

Inferring from the FMOLS, the DOLS procedure is developed from an asymptotically efficient estimator that 
eliminates the feedback often associated with the cointegrating regression system that is supported by Saikkonen 
(1992) and Stock and Watson (1993). The DOLS approach demands an extension of the cointegrating regression 

analysis utilizing lags and leads associated with ∆𝑋𝑡 in a way that the incidental cointegrating equation residual is 
orthogonal in reference to the history process of the random regressor simulation. Hence, equation (7) presents the 
basic DOLS model: 

𝑦𝑡 = 𝑋𝑡
′𝛽 + 𝐷1𝑡

′ 𝛾1 + ∑ ∆𝑋𝑡+𝑗
′ 𝛿 + 𝜇1𝑡      −                    −                      −     (7)

𝑝

𝑗=−𝑞

 

 

Where: 𝑦𝑡 is the dependent variable; X refers to the matrix of dependent variables; 𝛽 comprises the 
cointegrating vector associating the long-run cumulative multipliers, also, often regarded as the long-run impact of 
a change in X on Y; p refers to the lag length and q is the lead length. 
 

Assuming the summation of q lags in addition to r leads, the differenced regressors will immerse all the 

existing long-run association between 𝜇1𝑡and 𝜇2𝑡, such that least-squares estimates of 𝜃 = (𝛽′, 𝛾′)′ of equation (7) 



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will now possess a similar asymptotic distribution as those estimated from the FMOLS. The DOLS is characterised 

as an estimator to asymptotic variance matrix of 𝜃 is assessed by utilizing the classical OLS coefficient covariance. 

The process entails the substitution of the basic estimator for the residual variance which belongs to 𝜇1𝑡 in addition 
to another estimator with the long-run variance for the random term. Therefore, the cointegrating regression to be 
estimated may be presented thus: 

𝐿𝑛𝐸𝐺𝑡 = 𝛽0 + 𝛽1𝐿𝑛𝐺𝑆𝑃𝑡1 + 𝛽2𝐿𝑛𝐻𝐷𝐼𝑡2 + 𝛽3𝐿𝑛𝐼𝑁𝐹𝐿𝑡3 + 𝛽4𝐿𝑛𝑇𝑅𝐴𝐷𝐸𝑡4 + 𝛽5𝐿𝑛𝑃𝑂𝑃𝑁𝑡5 + 𝛽6𝐿𝑛𝐼𝑁𝐹𝑅𝑆𝑇𝑡6

+ ∑ 𝑑1∆𝐿𝑛𝐺𝑆𝑃𝑡−𝑗 +

𝑝

𝑗=−𝑞

∑ 𝑑2∆𝐿𝑛𝐻𝐷𝐼𝑡−𝑗 +

𝑝

𝑗=−𝑞

∑ 𝑑3∆𝐿𝑛𝐼𝑁𝐹𝐿𝑡−𝑗 +

𝑝

𝑗=−𝑞

∑ 𝑑4∆𝐿𝑛𝑇𝑅𝐴𝐷𝐸𝑡−𝑗

𝑝

𝑗=−𝑞

+ ∑ 𝑑5∆𝐿𝑛𝑃𝑂𝑃𝑁𝑡−𝑗

𝑝

𝑗=−𝑞

+ ∑ 𝑑5∆𝐿𝑛𝐼𝑁𝐹𝑅𝑆𝑇𝑡−𝑗

𝑝

𝑗=−𝑞

    −       −    (8) 

 

3.5. Estimation Procedure  
The estimation procedure for this research study utilises a four-step procedure. Step one involves descriptive 

statistics, as well as the correlation matrix of the regressors. Step two consists of the stationarity test, which entails 
determining the order of integration using the augmented Dickey-Fuller (ADF) approach and the Phillips-Perron 
(PP) approach. Step three focuses on determining the long-run equilibrium cointegration of the study variables 
using the Engle-Granger Single-Equation Cointegration Model. The fourth step involves regression analysis using 
the Dynamic OLS method. 
 

4. Empirical Analysis and Results 
4.1. Descriptive Statistics 

This subsection of the research work examines the statistical properties of the variables used in this study. The 
attributes of the study variables are presented in Table 1. The means of economic growth, government spending, 
human development, inflation, trade openness, population, and infrastructure are 7.02, 8.88, 8.32, 19.06, 35.47, 2.59, 
and 0.37, respectively. The maximum values for the variables, presented in the same order, are 8.07, 17.28, 10.52, 
72.83, 53.27, 2.80, and 2.74. The period of study for the variables spans from 1989 to 2023, resulting in 35 
observations. The variables that recorded the highest and lowest standard deviation values (variability) are 
inflation and population, with 16.56 and 0.22, respectively. The skewness of the data shows that it is negatively 
skewed, with economic growth, human development, trade openness, and population all recording negative values. 
Hence, the distribution is negatively skewed (to the left). Kurtosis measures the peak of the distribution, and in this 
data, it shows that it is platykurtic (below normal), as four variables (economic growth, human development, trade 
openness and infrastructure) all have values that fall below the threshold of 3, while the other three variables have 
kurtosis with values above 3. For the Jarque-Bera statistic, four variables (economic growth, human development, 
trade openness and infrastructure) have high probability values above 0.05. Therefore, the null hypothesis of a 
normal distribution cannot be rejected. Hence, the study data are typically distributed. 
 

Table 1. Descriptive Statistics. 

  LNEG GSP HDI INFL TRADE POPN INFRST 

 Mean 7.0258 8.5538 8.3210 19.0626 35.4764 2.5909 0.3672 

 Median 7.4098 8.1113 8.4710 13.0070 34.4578 2.6422 0.3104 

 Maximum 8.0712 17.2862 10.6240 72.8355 53.2780 2.8028 2.7395 

 Minimum 5.5985 5.0893 5.6910 5.3880 16.3522 2.0928 -1.6971 

 Std. Dev. 0.7787 2.6702 1.4145 16.5578 9.3378 0.2220 1.6804 

 Skewness -0.2700 1.4184 -0.1868 1.9471 -0.0203 -1.2950 0.0765 

 Kurtosis 1.4672 5.2321 2.1457 5.6990 2.3738 3.3756 1.3658 

 Jarque-Bera 3.8516 19.0017 1.2680 32.7383 0.5743 9.9885 3.9288 

 Probability 0.1458 0.0001 0.5305 0.0000 0.7504 0.0068 0.1402 

 Sum 245.903 299.382 291.236 667.191 1241.675 90.683 12.851 

 Sum Sq. Dev. 20.6182 242.4168 68.0284 9321.4220 2964.6080 1.6756 96.0054 

 bservations 35 35 35 35 35 35 35 

 

4.2. Correlation Matrix of Regressors 
The correlation matrix presents the estimates of the correlation values for all variables and is shown in Table 

2. The estimated correlation values of all study variables are generally low, except for those between government 
spending and infrastructure, as well as government spending and economic growth. The weakest correlations 
occur between trade openness and inflation, as well as population and inflation. Overall, the general trend of 
correlation values among the variables suggests that the dataset does not suffer from multicollinearity. 
 
 
 
 
 
 
 
 
 
 
 



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Table 2. Correlation Matrix. 

Covariance Analysis: Ordinary             

Correlation LNEG  GSP  HDI  INFL  TRADE  POPN  INFRST  

LNEG  1             

GSP  -0.7579 1           

HDI  0.5199 -0.6303 1         

INFL  -0.5612 0.2321 -0.4840 1       

TRADE  -0.2696 0.2568 -0.3944 -0.1115 1     

POPN  -0.2845 0.2419 -0.6047 0.0113 0.6256 1   

INFRST  0.5396 -0.7023 0.6844 -0.4447 -0.3709 -0.5134 1 

 

4.3. Unit Root Test 
Table 3 presents the unit root test results obtained using the Augmented Dickey-Fuller (ADF) and Phillips-

Perron (PP) tests. The test involves deploying all the variables used in this study. The results from the test show 
that all the variables covered in the study become stationary at the first difference. Hence, they are stationary at 
order one [I(1)]. The scenario of order-one stationarity indicates that the series's values are uniformly stationary 
at a second level. The most appropriate next step in analysis is to test for an equilibrium cointegrating relationship 
using the Engle-Granger approach or the Johansen test to determine if a long-run equilibrium cointegrating 
relationship exists. 
 
Table 3. Unit Root Test. 

Null Hypothesis: Series has a unit root 

Series: LNEG GSP HDI INFL TRADE POPN INFRST         

Method   ADF - Fisher Chi-Square Phillips-Perron Test     

Series t-Stat Prob Order of 
Integration 

Maximum 
Lag 

t-Stat Prob Order of 
Integration 

Maximum 
Lag 

LNEG -4.6676 0.0007 I(1) 1 -4.6763 0.0007 I(1) 1 

GSP -10.0282 0.0000 I(1) 1 -13.6451 0.0000 I(1) 1 

HDI -3.8494 0.0060 I(1) 1 -3.8221 0.0064 I(1) 1 

INFL -6.1946 0.0000 I(1) 1 -6.1264 0.0000 I(1) 1 

TRADE -5.7583 0.0000 I(1) 1 -12.0319 0.0000 I(1) 1 

POPN -4.1017 0.0375 I(1) 1 -4.7041 0.0076 I(1) 1 

INFRST -6.4541 0.0000 I(1) 1 -6.4541 0.0000 I(1) 1 

  1% level -3.6394     1% level -3.6463     

  5% level -2.9511     5% level -2.9540     

  10% level -2.6143     10% level -2.6158     

 

4.4. Engle-Granger Cointegration Test  
The Engle-Granger method of cointegration analysis was employed in this study to examine the long-run 

equilibrium cointegration relationship among all the variables considered. The test engages all the variables that 
make the model endogenous, enabling the determination of a long-run equilibrium relationship among them. The 
results of the cointegration evaluation are presented in Table 4. The z-statistic (comprising the normalised 
autocorrelation coefficient) together with the Engle-Granger tau-statistic jointly reject the null hypothesis of no 
cointegration among the variables at the 5% significance level. An assessment of the seven variables in the study 
confirms the existence of cointegration among four of them: government spending, human development, inflation, 
and trade openness. The values of the complementary probability are evaluated based on the MacKinnon feedback 
to culminate in the apparent model output. With the size of the sample and the associated probabilities of all the 
variables, the respective critical values validate the presence of seven (7) cointegrating equations at the 10% level of 
significance based on the application of the tau-statistic and z-statistic estimations. Therefore, the test confirms the 
presence of a long-run equilibrium cointegrating relationship among the variables: economic growth, government 
spending, human development, inflation, trade openness, population, and infrastructure.  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



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Table 4. Engel-Granger Cointegration Test. 

Series: LNEG GSP HDI INFL TRADE POPN INFRST          

Automatic lags specification based on Schwarz criterion (maxlag=8)     

Dependent tau-stat Prob.* z-statistic Prob.*         

LNEG -5.0793 0.1141 -29.4856 0.1156         

GSP -6.2682 0.0139 -37.8830 0.0087         

HDI -5.0734 0.1033 -53.4446 0.0000         

INFL -5.7860 0.0274 -35.1628 0.0447         

TRADE -5.8262 0.0253 -35.9093 0.0367         

POPN -3.4254 0.7050 -18.0446 0.6945         

INFRST -4.4237 0.2844 -25.1589 0.2811         

    LNEG GSP HDI INFL TRADE POPN INFRST 

Rho - 1   -0.8672 -1.1142 -0.2280 -0.8544 -0.9155 -0.5307 -0.7400 

Rho S.E.   0.1707 0.1778 0.1012 0.2287 0.1745 0.1549 0.1673 

Residual variance 0.0217 2.4940 0.1075 105.7886 45.9705 0.0088 0.1089 

Long-run residual variance 0.0217 2.4940 0.1075 109.4473 45.9705 0.0088 0.1089 

Number of lags 0 0 0 1 0 0 0 

Number of observations 34 34 34 33 34 34 34 

No. of stochastic trends** 7 7 7 7 7 7 7 

 

4.5. DOLS Impact Analysis of Government Spending and Human Development on Economic Growth in Nigeria 
The impact analysis of government spending and human development on Nigeria’s economic growth is 

presented in Table 5.  At the same time, government spending, inflation, trade openness, and infrastructure are 
significant in impacting economic growth, human development, and population, but not significant. In more 
specific terms, government spending has a negative and significant impact on human resources. In terms of 
elasticity analysis, the explanatory variable regression coefficients for GSP, INFL, TRADE, and INFRST are -
0.043, -0.006, -0.007, and 0.332, respectively. Thus, a 1% change in GSP, inflation, and trade will induce a 0.04%, 
0.01%, and 0.01% change in economic growth, respectively, in the opposite direction. Conversely, a 1% change in 
TRADE will induce a 0.33% change in economic growth in the same direction. Finally, while government 
spending has a negative and significant impact on economic growth, the effect of human development on economic 
growth is not substantial. 
 

Table 5. Effect of Government Spending and Human Development on Economic Growth. 

Dependent Variable: LNEG       

Method: Dynamic Least Squares (DOLS)     

Cointegrating equation deterministics: C   

Variable Coefficient Std. Error t-Statistic Prob. 

GSP -0.0431 0.0130 -3.3193 0.0026 

HDI 0.0916 0.4309 0.2127 0.8332 

INFL -0.0061 0.0018 -3.2975 0.0027 

TRADE -0.0076 0.0033 -2.3187 0.0282 

POPN 0.4266 0.9308 0.4583 0.6606 

INFRST 0.3315 0.0739 4.4884 0.0028 

C 7.2698 4.7527 1.5296 0.1700 

R-squared 0.8925 Mean dependent var 7.0526 

Adjusted R-squared 0.8669 S.D. dependent var 0.7809 

S.E. of regression 0.1421 Sum squared resid 0.1413 

Long-run variance 0.0083   
 

The effect of the adjusted R-Square shows that 87% of the variation in the dependent variable is accounted for 
by the variations in the explanatory variables.  
 

4.6. DOLS Impact Analysis of Government Spending on Human Development 
An evaluation of the effect of government spending on human development using the DOLS approach is shown 

in Table 6. The table shows that four out of the six explanatory variables in the model have a significant effect on 
human development. The impact of government spending on human development is negative and significant. More 
specifically, a 1% change in government spending induces a 0.41% change in human development in the opposite 
direction.  The adjusted R-squared in the model indicates that the variation in the independent variables explains 
77% of the variation in human development. 

 
 
 
 
 
 
 
 
 
 
 



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Table 6. Effect of Government Spending on Human Development. 

Dependent Variable: HDI 

Method: Dynamic Least Squares (DOLS)     

Cointegrating equation deterministics: C     

Variable Coefficient Std. Error t-Statistic Prob.   

GSP -0.4138 0.0597 -6.9275 0.0002 

LNEG -1.6330 0.5519 -2.9588 0.0211 

INFL -0.0563 0.0038 -14.9805 0.0000 

TRADE -0.0457 0.0143 -3.2082 0.0149 

POPN -1.3775 0.7463 -1.8458 0.1074 

INFRST 0.5796 0.2588 2.2401 0.0601 

C 29.4095 2.9308 10.0348 0.0000 

R-squared 0.7937     Mean dependent var 8.4089 

Adjusted R-squared 0.7721     S.D. dependent var 1.2621 

S.E. of regression 0.2108     Sum squared resid 0.3109 
Long-run variance 0.0110       

 

4.7. DOLS Impact Analysis of the Combined Effect of Government Spending and Human Development on 
Economic Growth 

An examination of the synergistic effect of government spending and human development on economic growth 
in Nigeria is shown in Table 7. The model indicates that four of the seven independent variables (inflation, trade 
openness, population, and infrastructure) have a significant impact on economic growth. Moreover, the model 
results indicate that the interaction coefficient between government spending and human development has a 
positive but insignificant impact on economic growth.  
 

Table 7. Effect of the Interacted impact of Government Spending and Human Development on Economic Growth in Nigeria. 

Dependent Variable: LNEG       
Method: Dynamic Least Squares (DOLS)     
Cointegrating equation deterministics: C     

Variable Coefficient Std. Error t-Statistic Prob. 

GSP -1.0495 0.7724 -1.3587 0.2674 
HDI -0.7646 0.8044 -0.9505 0.4120 
GSP*HDI 0.1493 0.1013 1.4742 0.2369 
INFL -0.0063 0.0019 -3.2794 0.0030 
TRADE -0.0086 0.0038 -2.2526 0.0329 
POPN 2.4299 0.7316 3.3214 0.0450 
INFRST 0.4273 0.0528 8.0904 0.0039 

C 6.4605 6.9524 0.9292 0.4213 
R-squared 0.6994 Mean dependent var 7.0526 
Adjusted R-squared 0.6935 S.D. dependent var 0.7809 
S.E. of regression 0.0629 Sum squared resid 0.0119 
Long-run variance 0.0028    

 
This means that government spending in Nigeria has not been well-targeted to impact human development in 

the country positively.  The adjusted R-squared indicates that 69% of the variation in economic growth is explained 
by the variations in the model's independent variables. 
 

4.8. Normality Test 
The normality test for the data utilized in this study in shown in Figure 1. While the data is positively skewed, 

the Kurtosis shows an average height with 3.13. Therefore, the distribution is mesokurtic falling into the category 
of a normal distribution. The Jarque-bera is 0.697 with a probability of 0.706 indicates that we cannot reject the 
null hypothesis of a normal distribution.    
 

 
Figure 1. Normality test. 



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5. Summary, Conclusions and Policy Recommendations 
This study examines the impact of government spending and human development on Nigeria's economic 

growth, spanning the period from 1989 to 2023. The study utilises economic growth as the dependent variable 
with government spending and human development as the independent variables. The control variables deployed 
in the study include inflation, trade openness, population and infrastructure. The study is timely, as the country is 
still in the planning stage to enhance the development and contributions of the human factor to the overall 
improvement of welfare in the country. For analysis, the study employed the dynamic OLS approach, which 
constitutes an improvement over the basic ordinary least squares model, as the study variables do not require any 
transformation to achieve a normal distribution. The study has drawn specific conclusions based on the empirical 
findings of the research analysis. The study underscores that government spending has a negative and significant 
effect on economic growth in Nigeria. The adverse effects of government spending on economic growth are 
corroborated by some existing empirical studies (Akamobi & Unachukwu, 2021; Castillo et al., 2022; Buthelezi, 
2023). The proponents of an adverse effect of government spending on economic growth argue in favour of the 
Neoclassical crowding-out hypothesis. The belief that government spending and borrowing activities negatively 
impact private sector productivity, ultimately leading to adverse effects on the country's economic activities. Also, 
the study found that human development has no significant effect on economic growth. The adverse effect of 
human development on economic growth often occurs in developing countries where the population is large and 
unskilled. Additionally, when there is excessive and reckless government spending on education without adequate 
consideration for its impact on other sectors of the economy, or poor execution of human capital development 
programs, it can reduce the effect on economic growth (Bawono, 2021). The third finding of this study concerns the 
negative and significant effect of government spending on human development in Nigeria. There are existing 
empirical studies that support the adverse effect of government spending on human development (Olofin, 2020; 
Omodero, 2019; Abbah et al., 2025). The negative relationship between government spending and human 
development may occur when a specific type of government spending, such as administrative costs, leads to 
diminished human development outcomes. The reverse relationship between the variables may indicate inefficiency 
or corruption in the administrative function of the government, leading to a diversion of resources that could have 
been used to enhance human development and the welfare of people. The final finding shows that the combined 
(synergistic) effect of government spending and human development has no significant effect on economic growth 
in Nigeria. When the interaction between government spending and human development has no significant effect 
on economic growth, it may signal underlying issues in the system, such as corruption, inefficient resource 
allocation, or political instability and conflict. These negative features would undermine the positive effects of 
investment in areas like education and health. There are other factors, like the type of expenditure (capital vs. 
recurrent) or the specific context of a country's stage of development, that could also play a substantial role in 
undermining the positive effects of government public sector investments. 

Based on the aforementioned findings, this study would proffer the following policy recommendations. The 
human development indicators of Nigeria remain low (HDI ~0.54), while government public spending on 
education and health is well below international benchmarks. Capital spending and investment execution have also 
been weak in the country. Therefore, the first recommendation focuses on improving government spending (15% of 
the budget) on education and health to meet the international standard. The improvement in health and education 
spending must be closely followed by effective execution and monitoring to ensure that the projects are well 
executed and completed. The attention of governments at the state and local levels must be focused on education 
and health. Besides building schools, governments should ensure the maintenance of facilities for optimal 
performance and provide teachers and health staff at the local school and health centre levels. Governments must 
emphasise the creation of institutions and centres for skills development, with a focus on technology-based courses. 
The educational curriculum of schools should be continually revised to incorporate modern trends in production 
and expand the scope of innovative courses, guiding the direction of the young people. 

The government policy should prioritise early childhood educational development, nutrition, basic schooling, 
and maternal health. The mode of implementation focuses on scaling up national school-feeding and micronutrient 
programs in impoverished states to boost school attendance and learning. Additionally, the government should 
expand primary healthcare packages to include community health workers, maternal/child services, and vaccines. 
Additionally, safety net programs must be integrated into schemes like nutrition screening and conditional cash 
transfers for pregnant women and low-income families. 
 

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