Human Capital Development and Poverty in Nigeria: Moderation Analysis of Institutional Quality
Emeka N koro1* and Aham Kelvin Uko2
ABSTRACT
The impact of human capital on poverty continues to be a controversial subject. This underscores the importance of institutions in human capital development as countries grapple with achieving sustainable development. Thus, the purpose of this study is to contribute to this discussion by examining the role of institutions in the poverty reduction effect of human capital in Nigeria between the periods of 1996-2024. First, a theoretical nexus was developed on the link between institutions, human capital and poverty. Second, at the empirical level, institutional quality index (IQI) was constructed from the six institutional indicators using the Principal Component Analysis, based on the fact that it is difficult to determine which of these indicators is most relevant for an empirical study. Secondly, a descriptive analysis was conducted to ascertain the state of institution, human capital and poverty in Nigeria. Finally, ARDL estimation method was used to study the role of institutions in the poverty-human capital relationship. The empirical results revealed that in Nigeria, first, unconditionally, human capital and institutions are potent tools for poverty alleviation. Second, compelling evidence from the interactive analysis revealed that institutional quality counteracted the significant effect of human capital on poverty. This means that the significant effect of human capital on poverty is not in isolation of institutional quality. In conclusion, the benefits of human capital in fostering poverty reduction may remain elusive if there is no improvement in Nigeria’s weak institutional fabric. On this basis, this study calls for an enhanced institutional fabric and proactive investments in human capital in Nigeria.
