Public Expenditure Shocks and Human Capital Development in the Presence of Structural Breaks: Evidence from Nigeria

Abstract

The study examines the impact of public expenditure shocks on human capital development in in the Presence of Structural Breaks: Evidence from Nigeria. The nature of this study necessitates the use of a time–series research design and an extensive reliance on secondary data sourced from the Central Bank of Nigeria (CBN) statistical bulletins, for the period 1981-2018. The method of data analysis utilized a battery of econometric applications often used in most contemporary economic time-series studies. First, the descriptive and correlation analysis is presented. After that the Augmented Dickey Fuller (ADF) unit root test and Zivot and Andrews Unit root for structural breaks is applied and this is followed by the co-integration test both with and without structural breaks. The Wald test for significance of the structural breaks was also employed and then the Variance Autoregressive (VAR) technique is then utilized. Finally, the impulse-response functions is conducted The study findings reveal that response of HCAP to innovations in HEXP is shown to exhibit oscillations over the period horizon with initial declines showing in the 1st quarter after the shock. An immediate rebound in HCAP response is observed beginning from the 2nd quarter after the shock and this positive rebound is sustained up to 10th quarter after the shock. However, one standard deviation shocks to EDEXP is seen to have immediate positive effects on HCAP lasting till 2-3 quarters after the shock and then followed by a decline sustained at a little below the baseline and declining further in the 7th quarter but again we see a slight rebound which reverts. On the overall, the shocks shows high potentials for asymptotic convergence and stability in HCAP. However, the response of HCAP to investment shocks is the most destabilizing. Furthermore, we observe that the impulse response functions are robust to structural breaks. The evidence of structural breaks reveals few instances of variations with the main analysis without breaks especially in relation the public expenditure. The result shows that, with the inclusion of breaks, the sustained positive effect in HCAP of a one standard deviation shock in HEXP is still observed and also sustained up to 10th quarter after the shock. Again just like in the case of no structural breaks, we also find that the shocks in EDEXP shows high potentials for asymptotic convergence and stability in the response of HCAP but in the case of investment, we find some differences in the response of HCAP comparing with and without structural breaks. The study recommends that need for government to ensure efficiency in public expenditures.