Government expenditure and unemployment nexus in Nigeria: Does institutional quality matter?

Abstract

This study investigates the role of institutional quality in the government expenditure‐unemployment nexus in Nigeria using different components of government expenditures (total, recurrent, and capital expenditures). Causality tests and the autoregressive distributed lag estimation methods are used to analyse data spanning the period from 1984 to 2019. The key findings are as follows: (i) unidirectional causality runs from unemployment to total and capital expenditure and a partial unidirectional causality runs from recurrent expenditure to unemployment; (ii) total and capital expenditures are pro‐employment in the long run, while the recurrent expenditure is only pro‐employment in the short run; (iii) institutional quality is detrimental to employment in the long run; and (iv) institutional quality significantly moderates the impact of government expenditure on unemployment in Nigeria. The Nigerian government need to increase pro‐employment expenditure and make concerted efforts at improving the institutional quality in Nigeria.