Impact of Debt-Financed Infrastructure Expenditure on Unemployment in Nigeria

Abstract

This study examined the impact of debt-financed infrastructure expenditure on unemployment in Nigeria from 2000 to 2024, employing the Dynamic Ordinary Least Squares (DOLS) estimation following confirmation of variables' integration at order one I(1) and cointegration via Johansen tests. Results revealed that external debt significantly increases unemployment, supporting the debt overhang hypothesis whereby excessive borrowing constrains employment through fiscal crowding-out. Public expenditure on construction exhibited a counterintuitive positive effect on unemployment, reflecting capital-intensive methods and implementation inefficiencies. Conversely, public expenditure on transport and communication demonstrated substantial unemployment reduction through enhanced connectivity and digital economy opportunities. The model satisfied all diagnostic tests confirming robustness. The study concludes that Nigeria's debt-financed infrastructure strategy requires fundamental reorientation toward transport-communication investments, labor-intensive construction methods, strengthened governance, and debt sustainability frameworks. Thus, the study recommends that policymakers should prioritize employment-sensitive infrastructure while reducing external debt dependence to achieve meaningful unemployment reduction and sustainable development