THE IMPACT OF HUMAN CAPITAL ON THE NIGERIA ECONOMIC GROWTH (1980-2013)
TABLE OF CONTENTS
Table of contents
Abstract CHAPTER ONE: INTRODUCTION
1.1 Background to the study Statement of the Problem
1.3 Research questions
1.4 Objective of the Study
1.5 Research Hypothesis
1.6 Significance of the Study
1.7 Scope of the Study
CHAPTER TWO: LITERATURE REVIEW
2.2.1 Conceptual Review 14
2.2.2 Roles of Human Capital Development in Economic Growth
2.2.3 Human capital development in Nigeria
2.2.4 Human Capital and Economic Growth in Nigeria
2.2.5 Health and education as components of human capital
2.2.6 Education policies in Nigeria
2.2.7 Problems of Human Capital Investment in Nigeria
2.3 Theoretical Review
2.3.1 Growth Processes and Economic Theory
2.3.2 Human Capital Theory
2.3.3 The Modernization Theory
2.3.4 The dependence theory
2.3.5 Panel Data and Growth Processes
2.4 Empirical Studies
CHAPTER THREE: METHODOLOGY
Identification of variables
A priori Expectation Estimation Techniques Sources of Data
CHAPTER FOUR: RESULTS AND DISCUSSION
Presentation of Results
Interpretation of result
Discussion of findings
SUMMARY, CONCLUSION AND RECOMMENDATIONS
Summary Conclusion Recommendations
This research work focus on human capital and Nigeria economic growth. The general aim of the work was to examine the relative impact of human capital on the Nigeria Economic growth. Secondary data was used for the study and the multiple regression analysis techniques was used for the analysis. The finding from the study showed that there is a strong relationship between human capital and Nigeria economic growth. Also high level of human capital has increased the utilization of resource both human and material .Therefore, economic growth is proxied by Gross Domestic Product while human capital is proxied by investment in education and health sector. This study recommends that in order to accelerate growth and liberate Nigeria from the vicious cycle of poverty, the government should put in place policies geared towards massive investment in the education and health which are accepted as major component of human capital.
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1.1 Background to the Study
Many scholars argue that human and physical capitals are significantly related. Nelson and Phelps (1966) claim that better educated people are more likely to innovate and assimilate new technology than poorly educated ones. Fishlow (1966) argues that high education levels in the 1900s helped to speed the accumulation of physical capital and the creation of new technology in the US. More recently, Romer (1993) formalizes the argument that a more educated populace is better able to integrate new technologies. Caballe and Santos (1993) and Graca, Saqib, and Philippopoulos (1995) demonstrate that an increase in the stock of physical capital should have a positive effect on the accumulation of human capital. In Lucas (1993) and Greiner (1999), any increase in physical capital must be matched by increases in human capital in order to sustain per-capita income growth. Upadhyay (1994), while recognizing the possibility that new technology may destroy existing human capital, constructs a model where innovation increases the derived demand for new types of human capital. Empirical work on the joint endogeneity of human and physical capital is considerably less extensive. In a cross-country regression of 78 countries, Benhabib and Spiegel (1997) find support for the Nelson and Phelps hypothesis that more educated countries grow faster. They show that increases in human capital bring about significantly higher growth in the stock of physical capital. To date, Grier (2002) is the only paper to empirically study the simultaneous determination of human and physical capital. In a panel of 21 Latin American countries from 1965–1990, Grier finds that the two types of capital are indeed jointly endogenous.
Human capital refers to education, health, on-job training and the skills acquired through interaction of people or societies. In more technical term human capital is defined as the aggregation of the innate abilities and the knowledge and skills that individuals acquire and develop throughout their lifetime (Ferid and Zefer, 2013). As an economic concept human capital is at least two centuries old, but its incorporation into the mainstream of economic analysis and research is a new and lively development. The need for this development became apparent in the 1950's, when the application of empirical economic research to the concerns about economic growth and about income distribution revealed major defects not only in our understanding of each but also in our way of thinking about these matters.
Human capital is recognized as an agent of national development in all countries of the world. Providing education and health services to people is one of the major ways of improving the quality of human resources. Apart from being issues of social concern, both provide an economy with healthy trained human resources required for economic growth and development. Prior to the Second World War (1939-1945), academic discourse on the relationship between education and economy was insignificant. However, later studies by Schultz (1961), Denison (1962) and a host other economists confirmed that the economy depended on education to foster economic growth.
In political terms, investment in human capital prepares people for participation in the political processes, particularly as citizens in a democratic society. From the social, economic and cultural points of view, human capital investment helps to lead fuller and richer lives, less bound by tradition. It is a way to empower people, this in turn will help them contribute substantially to the growth process in the economy. Human capital investment is crucial in the growth process of the Nigerian economy. Vision 20:2020 seeks to improve the educational system in terms of access, equity, infrastructure, teacher quality, and cumulative relevance, funding and planning. The millennium development goals (MDGs) slated to be fully achieved in 2015 also places emphasis on human capital.
Health and education are two closely related human capital components that work together to make the individual more productive. One component cannot be considered important than the other (Lawanson, 2009). Health connotes the ability to lead a socially and economically productive life (Anyawu et.al, 1997). A healthy populace will be highly productive and the educated have the tendency to apply a degree of sophistication in the production process.
Similarly, health is fundamental to economic growth and development and is one of the key determinants of economic performance both at the micro and macro levels. This derives from the fact that health is both a direct component of human well-being and a form of human capital that increases individual’s capabilities (Bloom and Canning, 2003). Grossman (1972) has equally demonstrated that health is a form of human capital. Schultz (1992) argued that population quality is the decisive factor of production and emphasized the merits of investing in education and health. Meeting the commendable United Nation health Millennium Development Goals (MDGs) of a reduction by two-thirds in the under-5 mortality ratio and a reduction by three-quarters in maternal mortality, and halting and beginning to reverse the spread of HIV/AIDS, malaria and other major diseases by 2015 will be completely elusive for Sub-Sahara African countries like Nigeria if sufficient attention is not paid to health expenditures. Similarly, eradicating illiteracy as one of the objectives of the (MDGs) will be a mirage if adequate attention is not given to educational expenditure by the federal government. It is against this backdrop that this paper examines the correlation between Expenditures on Education and Health Services, and Economic Growth in Nigeria. Among other objectives, the paper focuses on public expenditures on the education and health sectors during the period under review with a view to ascertaining the relative commitments of the governments to these sectors. In addition, the study empirically identified the various outcomes from expenditures on education and health services and their correlation with economic growth.
1.2 Statement of the Problem
According to Harbison and Myers (1964), Human resource development is one of the necessary conditions for all kinds of growth: social, political, cultural, or economic. The concept that investment in human capital promotes economic growth actually dates back to the time of Adam Smith (1776) and the early classical economists who emphasized the importance of investing in human capital. Sustained economic growth accompanied with social development is one of the notable macroeconomic objectives of every country and in this regard human capital is deemed as an essential ingredient.
Therefore, human capital has gained significant importance in growth theories. However, its measurement is not addressed properly in economic literature. Various researchers have utilized different proxies for human capital, for instance Mankiew et al. (1992) utilize secondary education enrollments. Barro and Lee (1993) and Bosworth et al. (1995) have used average years of schooling. The existing literature on human capital reveals that while acknowledging the role of human capital in economic growth macroeconomists express human capital solely in the form of education whereas micro economists consider health as another important component of human capital beside education. Micro economists believe that health plays significant role in the formation of human capital because in order to ensure growth in productivity, people need to be healthy or protected from sickness. It means health and education both are primary ingredients of human capital formation.
However human capital theory as well as endogenous growth theory suggests that there are substantial economic effects of education on the micro and macroeconomic level. The interrelationship between education and economic growth has been the subject of debates, enjoying a wide interest since the era of Plato. According to Dikens et al. (2006), Zoega (2003) and Barro (1991), education has a high intrinsic economic value since the investments in education led to the formation of human capital, which is one of the causes of economic growth.
According to Stevens and Weale (2003), life quality has substantially increased in the last millennium in most countries of the world, and particularly in European countries, the development of educational field has been contributing to it.
One of the main motivations for studying education from economic point of view is its impact on reducing income inequalities (Ram, 1990), and the relationship between education and labor market (Benito and Oswald, 2000).
In Nigeria, the rate of illiteracy is very high. Most of the workers are unskilled and they make use of outmoded capital, equipment and methods of production. By implication, their marginal productivity is extremely low and this leads to low real income low savings, low investment and consequently low rate of capital formation while low capital formation affect economic growth. It was indicated that adult literacy rate of at least 65% would be attained by 2008. Therefore the strategy aimed at empowering the citizenry to acquire the skills and knowledge that would prepare them for the vast challenges. Overtime, the following issues relating to the concept have remained unresolved: Uneven distribution of skilled manpower, Misemployment of human capital in Nigeria, Poor reward system retarding the acquisition and development of human capital
1.3 Research questions
The following are the research question which the study tries to provide answer to.
1. Does human capital have possible impact on Nigeria economic growth?
2. Does school enrolment have impact on Nigeria economic growth?
3. What is the impact of Government Education expenditure on Nigeria economic growth?
4. Does health expenditure have significant impact on Nigeria economy?
1.4 Objective of the Study
The broad objective of this research is to evaluate and appraise the positive impact of human capital development and physical capital development on economic growth in Nigeria. However, the specific objectives are as follow:
1. To examine the impact of human capital on Nigeria Economic growth.
2. To examine the impact of school enrolment on Nigeria economic growth.
3. To determine the impact of government education expenditure on economic growth.
4. To examine the impact of health expenditure on economic growth.
1.5 Research Hypotheses
Becker (1962), who believes that human capital is just like physical capital and one, can invest in it by means of education, health and training which, in turn, will raise output and contribute to economic growth. Proponents of endogenous growth theory lay emphasis on human capital formation and regard it a factor which explains difference in growth performance of under developed and developed nations (Rebelo, 1991). In the empirical findings of this study possible relationships between human capital and economic growth are:
i. Human capital does not have significant impact on Nigeria economic growth.
ii. School enrolment does not have significant impact on Nigeria economic growth.
iii. Education expenditure does not have significant impact on Nigeria economic growth.
iv. Health expenditure does not have significant impact on Nigeria economic growth.
1.6 Significance of the Study
The study of this nature is prompted by the slow rate of Nigeria’s economic growth despite the huge contribution of the government. Researches on this topic being carried out over the years have not really achieved its prior objective. The effect of human capital development on economic growth holds a lot of benefits to our overall economic progress. The government and its agencies will find this work resourceful in formatting policy, directives and regulations for human capital development and physical capital development to aid economic growth.
1.7 Scope of the Study
The study examines the impact of human capital formation and economic growth in Nigeria between 1980 to 2013. Even though human capital formation includes education, training, health, social capital and more. The study confines itself by considering health index and education index as proxy for human capital development.