Educational Expenditure and Economic Growth in Nigeria
Abstract
This study investigated the relationship between educational expenditure and the Nigerian economic growth, using annual time series data over the period 1981-2015. The study employed the impulse response function (IRF) and variance decomposition (VDC) of the vector error correction model (VECM) technique. The rationale for using the IRF was to determine the effect of shocks in educational expenditure, capital formation and labour force on growth, while VDC was adopted to measure the relative importance of shocks in educational expenditure, capital formation and labour force on growth of the Nigerian economy. The study found that economic growth responds positively to educational expenditure. The IRF, however, showed that economic growth responds negatively to gross capital formation. Also, IRF indicated that economic growth responds negatively to labour force; while VDC, on the other hand, revealed that educational expenditure accounts for the least variation in economic growth, despite its positive effect on growth. VDC also showed that labour force accounts for the greatest variation in economic growth. The study also applied Granger causality test to determine the cause-effect relationship between educational expenditure and growth and found that growth granger-causes education expenditure, while educational expenditure does not granger-cause growth, even though growth tend to responds positively to education expenditure. The implication of this finding is that educational expenditure does not cause growth of the Nigerian economy. As a result, the study recommends that the Nigerian government should increase its budgetary allocation to the education sector to improve the quality of education and the labour force thereby bringing about increased growth of the economy at large.
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