THE EFFECT OF INFORMAL ECONOMY ON HUMAN CAPITAL DEVELOPMENT

Abstract

This study investigated the effect of the informal economy on human capital development and the direction of causality between informal economy and human capital development in Nigeria from 1970 to 2019. The study objectives were achieved by analysing annual time series data sourced from the World Development Indicators and Central Bank of Nigeria using the autoregressive distributed lag estimation technique and the Toda-Yamamoto causality test. Findings from the study showed positive long-run effect of informal economy on human capital development. The result from this study also revealed unidirectional causality flowing from informal economy to human capital development. Consequently, this study concluded that engagement in informal economic activities is beneficial to human capital development in Nigeria. Following these findings, Nigerian policy makers aiming to achieve human capital development should implement comprehensive policies which facilitate the competitiveness and growth of informal economic activities.