Public Social Expenditure and Economic Growth in Nigeria: The Moderating Role of Institutional Quality

This study examines the growth effects of public social expenditure in Nigeria, emphasizing the moderating role of institutional quality. Using annual data from 2000–2023 from the World Development Indicators, Worldwide Governance Indicators, African Development Index, Humanitarian Data Exchange, and Macrotrends, the study employs the Autoregressive Distributed Lag (ARDL) approach and an Error Correction Model (ECM). Results confirm a stable long-run relationship among economic growth, social expenditure, human capital, institutional quality, infrastructure, and trade openness. In the short run, education expenditure negatively affects growth, reflecting adjustment lags, fiscal pressures, and weak labour-market absorption, while health expenditure boosts immediate productivity. Human capital development and institutional quality also enhance short-run growth. Interaction effects reveal that institutional quality amplifies the efficiency of education spending but dampens the impact of health expenditure, indicating sector-specific coordination challenges. Infrastructure negatively affects short-run growth, whereas trade openness provides a strong positive effect. In the long run, education expenditure and human capital significantly promote growth, supporting the human capital–led growth hypothesis, while health expenditure is insignificant. Institutional quality shows no direct effect, but its interaction with education expenditure is negative, reflecting structural rigidities that constrain the economy’s absorptive capacity. Trade openness sustains long-run growth, whereas infrastructure inefficiencies persist. The findings underscore that the growth impact of social spending is time-dependent and conditioned by governance and structural transformation.