<p>I’m working on a project research at BSc level on “the effect of government expenditure on human capital development with a scope of 1990 - 2022 (Nigeria)”. I am confused with my model specification. Currently my model is
<span class="math-container">$$
RGDP=\beta_0+ \beta_1HDI+ \beta_2CEX+ \beta_3CPI+ \beta_4INF+ e
$$</span>
where<br />
<span class="math-container">$RGDP$</span> = Real Gross Domestic Product which is a proxy for economic growth<br />
<span class="math-container">$HDI$</span> = Human development Index<br />
<span class="math-container">$CEX$</span> = Current expenditure<br />
<span class="math-container">$CPI$</span> = Corruption perception index<br />
<span class="math-container">$INF$</span> = Inflation<br />
<span class="math-container">$e$</span> = Error term<br />
<span class="math-container">$\beta_0,\dots,\beta_4$</span> = coefficients of regressors</p>
<p>Is this model is satisfactory for my estimations?</p>

CC BY-SA 4.0
2023-08-11T15:49:11.293Z
If your goal is to find the effect of government expenditure on human capital development, then why is your dependent variable not a measure of human capital? Also, your equation has RGDP on the left  and a measure on the right that is partly dependent on GNI per capita (similar to GDP per capita). Your best bet is to look at what equations other researchers have used to study the same problem (and look at relevant theory). In any case, if it is a purely time series analysis you will have to be careful to check for stationarity (to avoid a spurious regression).
smcc
CC BY-SA 4.0
2023-08-11T15:55:00.713Z
The logic behind your equation seems to be that higher government expenditure increases GDP. However, causation can go the other way: government expenditure is likely to be higher when government revenue is higher, and government revenue is higher when GDP is higher. The time lags are likely to be different: for example it is likely it takes some time for government expenditure on infrastructure to increase GDP, whereas the effect in the other direction is likely to be more immediate.
smcc
CC BY-SA 4.0
2023-08-11T19:57:49.597Z
Try a more informative title. Currently, only 2 out of 6 words are informative, as everyone here is seeking help.
Richard Hardy
CC BY-SA 4.0
2023-08-13T08:13:39.217Z
@smcc, I really appreciate your contribution. But then, the Objective of my research is to ascertain the effect of human capital development on the economic growth of the country. More like Y=f(government expenditure on human capital development).
Hez B
CC BY-SA 4.0
2023-08-13T08:14:34.013Z
@smcc, Hence, shouldn't RGDP be my dependent variable? I CPI as part of my explanatory variable as a measure of corruption in Nigeria because this is an ongoing situation in the county.
Hez B
<econometrics>
Effect of government expenditure on human capital development: model specification
Hez B
# Effect of government expenditure on human capital development: model specification

(Asked by: username_0 on 2023-08-10)

I’m working on a project research at BSc level on “the effect of government expenditure on human capital development with a scope of 1990 - 2022 (Nigeria)”. I am confused with my model specification. Currently my model is
$$
RGDP=\beta\_0+ \beta\_1HDI+ \beta\_2CEX+ \beta\_3CPI+ \beta\_4INF+ e
$$
where  
$RGDP$ = Real Gross Domestic Product which is a proxy for economic growth  
$HDI$ = Human development Index  
$CEX$ = Current expenditure  
$CPI$ = Corruption perception index  
$INF$ = Inflation  
$e$ = Error term  
$\beta\_0,\dots,\beta\_4$ = coefficients of regressors

Is this model is satisfactory for my estimations?

**Tags:** econometrics
> **Comments:**
> **username_1**: If your goal is to find the effect of government expenditure on human capital development, then why is your dependent variable not a measure of human capital? Also, your equation has RGDP on the left  and a measure on the right that is partly dependent on GNI per capita (similar to GDP per capita). Your best bet is to look at what equations other researchers have used to study the same problem (and look at relevant theory). In any case, if it is a purely time series analysis you will have to be careful to check for stationarity (to avoid a spurious regression).  
> **username_1**: The logic behind your equation seems to be that higher government expenditure increases GDP. However, causation can go the other way: government expenditure is likely to be higher when government revenue is higher, and government revenue is higher when GDP is higher. The time lags are likely to be different: for example it is likely it takes some time for government expenditure on infrastructure to increase GDP, whereas the effect in the other direction is likely to be more immediate.  
> **username_2**: Try a more informative title. Currently, only 2 out of 6 words are informative, as everyone here is seeking help.  
> **username_0**: @smcc, I really appreciate your contribution. But then, the Objective of my research is to ascertain the effect of human capital development on the economic growth of the country. More like Y=f(government expenditure on human capital development).  
> **username_0**: @smcc, Hence, shouldn't RGDP be my dependent variable? I CPI as part of my explanatory variable as a measure of corruption in Nigeria because this is an ongoing situation in the county.  

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## 0 answers

