Effect of Capital Expenditure on Unemployment Rate in Nigeria

Abstract

This study investigated the effect of capital expenditure on the unemployment rate in Nigeria from 1981 to 2020. Data for the study was obtained from the Central Bank of Nigeria's Statistical Bulletin and the World Bank's World Development Indicators. Several diagnostic tests were performed to assess the relationship between the variables, including descriptive, correlation analysis, unit root test, Johansen co-integration test, and error correction model (ECM) approach.

The results of the unit root and Johansen co-integration tests lead to the use of the ECM approach to determine the impact of capital expenditure on unemployment rate in Nigeria. The dependent variable was unemployment rate, and the explanatory variables were capital expenditure, tax revenue, labour force, compensation of employees, gross capital formation, gross domestic product, and import of goods and services. The findings revealed that four of the seven explanatory variables were statistically significant, with capital expenditure and gross capital formation having a negative and significant impact on unemployment rate in Nigeria. In contrast, labour force and gross domestic product had a positive and significant impact on unemployment. The study recommends that the Nigerian government should increase its capital expenditure to generate more employment opportunities, which will enhance labour productivity and reduce unemployment rate. Additionally, the government should carefully monitor the allocation of capital expenditure to productive sectors that will achieve the desired objectives.