Oil price shocks and human capital channels in Nigeria

Abstract

Nigeria faces persistent challenges of high unemployment and poverty, worsened by its over-reliance on the oil sector. While many studies have investigated the relationship between oil price volatility and human capital development, few have examined how this relationship impacts both basic and advanced human capital channels in developing economies; this study addresses that gap by using a Structural Vector Auto Regression (SVAR) approach to investigate how oil price shocks influence human capital channels. Co-integration tests reveal significant long-term relationships among the variables. For the basic channel, oil price shocks are negatively associated with secondary school enrollment but positively linked to primary school enrollment. In the advanced channel, oil price has a positive effect on government expenditure on tertiary education but negatively affects tertiary institution enrollment. The impulse response function confirms that oil price fluctuations significantly affect both basic and advanced channels of human capital. The findings show the detrimental impact of oil price shocks on Nigeria's human capital development, which may negatively affect sustainable development. The study emphasises the urgent need for economic diversification to reduce the economy's vulnerability to oil shocks and promote long-term growth and human capital development.