Threshold Effect of Public Education Expenditure on Literacy Rate in Nigeria

Nigeria continues to experience literacy challenges despite decades of public spending on education, raising concerns about whether existing funding levels are sufficient to generate meaningful improvements in adult literacy. Based on that, this study investigates the threshold effect of public education expenditure on adult literacy rates in Nigeria using a Threshold Regression (TAR) model and annual data from 1991 to 2024. The results show a positive and statistically significant relationship between public education expenditure and adult literacy rates, with the effect becoming more pronounced when expenditure surpasses 1.02% of GDP. Specifically, below 1.02% threshold, a 1% increase in PEE leads to a 2.06% increase in literacy, while above the 1.02% expenditure threshold, the effect increases to 3.35%. Secondary school enrolment (SER) was also found to have a significant positive impact on literacy, while tertiary enrolment (TER) was not statistically significant. Robustness checks using baseline OLS estimation and separate threshold models for recurrent and capital education expenditure confirm the stability of the nonlinear relationship. Hence, the study concludes that sustained investment in public education, particularly beyond the 1.02% of GDP threshold, and prioritizing secondary school enrolment, is essential for improving literacy rates in Nigeria. Based on these findings, it is recommended that the Nigerian government increase education spending, particularly targeting secondary education, to enhance literacy outcomes and foster long-term human capital development.