Human Development and Macroeconomic Shocks in Nigeria: An Empirical Investigation

Abstract

This paper explores how human development responds to selected macroeconomic shocks in Nigeria. The study employed the Sen’s capabilities approach as the analytical approach and posited that the level of education, health status, quality of investment, technology, and government fiscal and monetary policies are plausible determinants of human development. We used the Structural Vector Autoregression (SVAR) to estimate the responses of such selected shocks, which are inflation, interest rate, government capital expenditure, exchange rate, current account balance, and savings shocks. The Forecast Error Variance Decomposition (FEVD) and the Impulse Response (IR) showed that a fiscal policy shock is the major factor influencing human development outcomes. This finding underscored the important role government plays in enhancing the well-being of its citizens. Fiscal policy tools (such as investment in education, health, housing, and infrastructure) are essential for human development. In particular, the human development outcome is found to respond positively to shocks from real interest rates, which are felt significantly in the short run. We concluded that human development is negatively affected by a sudden decline in the federal government’s capital budget expenditure.