Public Investment Quality, Productive Efficiency, and the Fiscal Multiplier in Nigeria

The fiscal multiplier, which measures the change in economic output generated by a unit increase in government expenditure, is shaped not merely by the size of public investment but by its quality, defined as the productive efficiency with which invested funds translate into physical and human capital formation. This study develops a theoretical framework that explicitly models public investment quality as a determinant of the fiscal multiplier and estimates the quality-augmented multiplier for Nigeria using structural econometric methods. The theoretical contribution is a new Keynesian dynamic stochastic general equilibrium model with public capital that incorporates an endogenous public investment efficiency parameter driven by institutional quality, procurement integrity, and project selection criteria. The model generates predictions about how improvements in public investment quality amplify the output response to fiscal expansions and about the conditions under which the multiplier exceeds or falls below one. The empirical application uses annual data from the Budget Office of the Federation, the National Bureau of Statistics, and the Infrastructure Concession Regulatory Commission from 1999 to 2023. The public investment quality index is constructed using the IMF's Public Investment Management Assessment scores and augmented with Nigerian-specific procurement data. Structural vector autoregression with Blanchard-Perotti identification is used to estimate baseline multipliers, and heterogeneous multipliers are estimated by conditioning on the quality index using a smooth transition regression. The PhD-level contribution lies in the theoretical model incorporating public investment quality, the construction of a quality-adjusted multiplier estimation framework, and the policy relevance of quantifying the return to governance improvement in the public investment process. Findings carry implications for the Federal Ministry of Finance, the Infrastructure Concession Regulatory Commission, and the World Bank's public investment reform support programme. Keywords: fiscal multiplier, public investment quality, productive efficiency, Nigeria, dynamic stochastic general equilibrium