Labour Productivity as a Mediating Channel in the Inflation, Savings, Growth Nexus

Evidence from Nigeria

Abstract

This study investigates labour productivity as a mediating channel in the complex relationship between inflation, savings, and economic growth in Nigeria from 1981 to 2024. While conventional growth theories posit a positive link between savings, capital formation, and output, Nigeria’s persistent experience of ‘jobless growth’ and macroeconomic instability presents a critical paradox. The analysis employs an Autoregressive Distributed Lag (ARDL) bounds testing approach to examine both short-run dynamics and long-run cointegrating relationships. The empirical findings reveal a significant and persistent negative effect of inflation on growth in both time horizons. Crucially, while savings exhibit a positive but insignificant short-run impact, the long-run relationship becomes negative and statistically significant—a counterintuitive result that challenges orthodox models. This outcome is interpreted through the conceptual lens of the Rentier-State Human Capital Trap, which posits that in Nigeria’s oil-dependent, enclave-led economy, savings are inefficiently intermediated and often diverted into unproductive or speculative ventures rather than investments that enhance broad-based labour productivity. Consequently, the mediating channel of labour productivity is structurally constrained. The study concludes that policy interventions focused solely on price stability or savings mobilization will remain insufficient unless they are integrated with structural reforms designed to break the rentier-state logic, redirect capital towards productivity-enhancing sectors, and create a domestic demand for skills, thereby activating labour productivity as a true engine of sustainable and inclusive growth.