Human capital investments and income inequality in Nigeria: Does institutional quality matter?

Abstract

The study examines the impact of human capital and institutional quality on income inequality from 1990 to 2021. This study adopts the Kuznets model as its theoretical framework. The unit root test revealed a mixed stationary in the variables which prompts the choice of Autoregressive Distributed Lag of which its bound test result shows that there is a cointegration in the variables. The long-run results show that government expenditure on education, government expenditure on health, government effectiveness, and domestic credit to the private sector have a positive but not significant effect on income inequality while in the short-run, government effectiveness and domestic credit to the private sector have a positive but not significant impact on income inequality. Moreover, only government expenditure on education affects income inequality in the Nigerian economy positively and significantly. Based on the findings revealed, the study recommends that the government should by all means and economic resources increase the budget of human capital to enhance the reduction of income inequality in the country and place more emphasis on providing education grants and incentives that encourage the reduction of brain drain.

Keywords

• income inequality
• institutional quality
• Kuznets model
• ARDL
• Human capital investment