Income Inequality, Economic Growth, and the Roles of Human Capital, Labour Market, and Institutional Dynamics in Nigeria (1994–2023)

Abstract

This paper has discussed the interplay between income inequality and economic growth, human capital and labour market condition and institutional dynamics in Nigeria during the years 1994-2023. This would be driven by the fact that there has always been income inequality in Nigeria regardless of the economic reforms and growth spurts. The paper used the Autoregressive Distributed Lag (ARDL) estimation model to analyse both short-run and long-run relationship between the variables and used time-series data available in the appropriate national and international databases. Empirical evidence indicated that the human capital variables, especially access to secondary education and healthcare are important in decreasing income disparities in Nigeria. Increases in education levels and health status were linked with reduction in the income inequality with time. On the other hand, labour market, and in particular unemployment, were also identified to contribute greatly to the income inequality, which was a consequence of the distribution nature of the limited creation of jobs and the low absorption power of labour. Institutional dynamics, which were measured based on the efficiency and quality of governance in the public sector also revealed that inefficiencies in the distribution of public resources also lead to increase of income inequality. The ARDL bounds test proved the presence of long-run relationship between income inequality and economic growth and the development of human capital, labour market results, and institutional factors. Moreover, the findings suggested that income inequality and economic growth have a complex relationship in which income inequality might be linked to short-term growth effects, but in the long-term, such inequality has a limiting effect on growth that can be sustained and inclusive of all. The research concludes that to reduce income inequality in Nigeria, improvements must be made in human capital development, performance of the labour market and effectiveness of the institutions to promote inclusive economic growth.