impact of government education expenditure on economic growth in Nigeria from (1990- 2013)


This study examines the impact of government education expenditure on economic growth in Nigeria from (1990- 2013). The ordinary least square method of econometric analysis which ensure both unbiased and consistent estimates is employed. The result reveals that government education expenditure has significant impact on economic growth. The study also show that government recurrent education expenditure does not have significant impact on economic growth. The study also show that Government capital educational expenditure has significant impact on Economic Growth. To further enhance the potentials of the Nigeria economy toward economic growth, the study recommends that the government should increase it expenditure on education at all levels. This is a projection that if achieved, will help in achieving the macro economic stability via economic growth. Also government should increased its aggregates spending both capital and recurrent on education sector







  • Background to the Study

Education plays an important role in human capital development which is a key to scientific and technological advancement. Education is also regarded as a sustainable route to economic prosperity, it combats unemployment, confirms sound foundation of social equity, awareness and cultural vitality. It raises the productivity and efficiency of individuals and produces skilled manpower capable for leading the economy towards the path of economic development.

There are two very basic reasons for expecting to find some link between education and economic growth. First of all at the most general level it is intuitively plausible that living standards have risen so much over the last millennium and in particular since because of education. Secondly, at a more specific level, a wide range of econometric studies indicates that the incomes individuals can command depend on their level of education. If spending on education delivers returns of some sort, in much the same way as spending on fixed capital, then it is sensible to talk of  investing in human capital, as the counterpart to investing in fixed capital. The process of education can be analysed as an investment decision.

The relationship between education and economic growth has been extensively investigated, with the theoretical and empirical models, although the question of how education affects economic growth is not yet fully resolved. One of the issues that cause controversy is that of the apparent contradictions between the effects of education on the growth of personal income (microeconomic effect) and on economic growth (macroeconomic effect). Regarding the microeconomic effect, the consensus is that on average, more education tends to increase an individual’s earnings. However the growth effects of public spending have also received much attention in the analytical literature on endogenous growth. As shown in an influential early contribution by Barro (1990) and much of the subsequent literature spawned by it, public services and capital in infrastructure may promote growth through their effect on the productivity of factors and the rate of return on capital, and the growth-maximizing rates of taxation and public investment are in general positive.

In spite of what Nigeria uncircumcised huge financial education sector in order to achieve the Millennium Development Goals on the one hand and the presence of a number of studies and evidence of economic pilot looked at the relationship between investment spending, educational and economic growth of developing countries and developed countries alike, but this relationship tinged so many of the ambiguities and vary from state to state, as well as to oppose the scholars of the subject of the relationship between performers (Positive relationship), and opponents of the (negative relationship)

Education has been regarded as one of the leading determinants of economic growth since the time of Adam Smith. Over time, many economic growth theories and models (such as Romer, 1990 and Lucas, 1988) have developed relating education and economic growth. The belief, that education promotes growth has led governments of many developing countries to invest in the education sector. Even the theoretical literature also

provides a backing for such a policy (Pissarides, 2000). However, the empirical literature has failed to establish a robust relationship between education expenditures and growth.

In many African countries, formal education is in a state of crisis. While curriculum reforms continues to serve as an ongoing source of public policy debate, African leaders are confronted with the difficulty of allocating educational resources to meet present and future levels of educational demand. The paralysis that has been unfolding is one characterized basically by education’s rising claim on public sector resources against a backdrop of widespread poor economic growth, mounting international dept and rapidly growing population, whose demand for education cannot be met readily by traditional means. There   have   been a positive relationship between per capita GDP and   educations share of GDP. Wide disparities suggest that since education must compete with other claims for investment resources,  how efficiently education is delivered may be as important as the level of resources. Within this contest, we ask what options are available to respond to Africa’s growing educational demand, how can they be managed and what role can these options play in promoting accelerated economic growth and development?

Education is both a private and social investment that is shared by individual students, their families, employers, governments and other groups including international agencies. The sharing arrangement varies considerably from country to country,  both in the proportion of public and private funds allocated to education and in their mechanism by which the cost of education is founded. It thus yields direct and indirect benefits both to individuals and to the society. The most obvious benefits of education to individuals  is higher lifetime earnings, and to the society, higher productivity of educated workers and the additional contribution to national income over their entire working lives (Psacharopopulos, 1994).

A major controversy among analysts and policy makers   concerns the objective of educational development. Some have suggested that education should be provided for its own sake as a means of enriching individual’s knowledge and   developing their full personalities.  This concept of education has continually   influenced policies in advanced countries of the world.  Others hold that education should seek to prepare people to perform functions that are essential for the transformation of their environment. This  two   points  of view can be considered in terms of educational capital good  rooted in the concept of  human capital. This attaches high premium to human skills as a factor of production in the development process. A corollary of this is that human skill or productivity is just as important input in the process of development of finance, natural wealth and physical plant. Because education plays a most important role in the creation and improvement of human capital, its relevance and  important to economic growth and development are now well recognized in development planning. Experiences of developing countries  during  the past decade has indicated that shortage of talents and skills needed for development can decisively retard economic progress.

It is widely acknowledged that education is an important determinant factor of economic growth. Prominent classical and neo-classical economists such as Adam smith, Romer, Lucas and Solow emphasized the contribution of education in developing their economic growth theories and models. The main theoretical approach of modeling the linkages between education and economic performance are the neo-classical growth models of Robert Solow (1951) and the models of Romer (1990). Apart from the theoretical aspects, numerous empirical studies have focused on the issue of   education and economic development. According to Ismail (1998), education is considered as a long time investment that leads to a high production for a country in  the future. Infact, economists argue that advance educational sector will certainly lead to successfulness of a country’s economic and social development. Therefore, most of the developed and developing countries emphasize the enhancement of the educational sector.

Nigeria has no exceptions in enhancing its educational system in order to be a world class country (Awang and Ibrahim, 2008). Nigeria’s commitment in developing it’s education sector has been tremendous. This can be seen from Nigeria’s annual budget allocation. Despite the financial turmoil that badly affected Nigeria’s economy in which had devaluated Nigeria currency, government’s allocation for the educational sector has never been reduced. Emphasis on the educational sector has been successful, most especially in the late 1980s and early 1990s, as it plays important role in achieving national development agenda and contributed to the country’s economic growth and literacy  rate. Sheehan (1971) listed   some  direct  benefit  that countries gain   from education. This  include increase in   productivity, labour’s income, countries economic growth and literacy rate. In addition, education could also improve efficiency of income allocation as well  as labour’s  mobility and transfer in accordance with work  demand of trained workers.

Nigeria is a multi-ethnic group, but consisted of three major ethnic groups namely, the Igbos which inhabited the Eastern part of the country, the Hausas which inhabited the Northern part and the Yorubas at the Western part.

Before the coming of the colonial masters, Nigeria practiced a traditional education system which comprises of teachings based on religious background (Islam and Christianity). Essentially, the major aim of education was to foster good character in the individual member of the society for them to be useful in  the larger society. For instance, local stories and folktales were usually told and references to ancestors who demonstrated the act of legendary. Notwithstanding that this system was a hallmark for the preservation of socio-cultural values and norms, the system fail to  make room for critical thinking and research development.

1.2     Statement of the   Problem.

The rapid expansion of education system over the last three decades, compounded by more recent global economic crisis      and fiscal   stringency due to over dependence     on oil  has  left both lower and higher institutions in Nigeria short of funds for their    operation in relation to the operations imposed on them.

The idea that education is a form of investment  in human capital is one of the most important development in the Economy in recent decades and it has had considerable impact on educational planning both in developed and developing countries. For both government and individuals, the choice between different ways of investing resources rests to a large extent on an evaluation of the cost and benefit associated with the investments.

In Nigeria, the decline in the quality of education at all levels has become a fact of national life. Indeed, the most significant event in the sector in the recent past has been the continuing crisis besetting the educational system. This crisis is rooted in the deteriorating conditions within the citadels of learning, in respect of teaching facilities and other infrastructural facilities, the welfare of all those involved in the teaching profession and the ever increasing cost of education. This has culminated in student unrest and industrial actions by lecturers and teachers through their respective umbrella association such as Academic Staff Union of Nigeria Universities (ASUU), College of Education Academic Staff Union (COEASU), Nigeria Union of Teachers (NUT), etc. at the different levels of educational system.

Owing to the failure of the state and local government to fund primary and secondary education appropriately, leading to the crisis in the Nigerian educational system, and their fundamental causes i.e. the gross under funding of the institutions, resulting to poor and inadequate facilities to foster good learning conditions, and the poor conditions of services for teachers amongst other issues which have continued unabated, this study seeks to evaluate the efficiency of government educational expenditure as it impacts on the economic growth and development, on human capital development and on the literacy rate in Nigeria ranging from 1990 to 2014.

1.4     Objectives of the Study

The broad objective of the study is to access the impact of the governments’ educational expenditure on Nigerian economic growth between the year  1990 – 2014.

The specific objectives of the study are as follows;

  1. To determine the relationship between government educational expenditure on economic growth in Nigeria
  2. To examine the impact of government educational expenditure on human capital development.
  3. To access the effect of government educational expenditure on the literacy rate in Nigeria between 1986 – 2012.

1.3     Research Questions

In an attempt to achieve the stated objectives, this research study addresses the following questions:

  1. What is the relationship between education expenditure and economic growth of Nigeria?
  2. Does human capital development have significant impact on economic growth in Nigeria?
  3. Does literacy rate have significant impact on economic growth in Nigeria?


1.5     Research Hypotheses.

This study  aimed to test the following hypotheses:

  1. Government educational expenditure has no significant impact on economic growth in Nigeria.
  2. Human capital development has no significant impact on economic growth in Nigeria
  3. Literacy rate has no significant impact on economic growth in Nigeria.

1.6     Justification for the Study

When the three fundamental objective of this study are achieved, the findings of the study would serve as a yardstick for appraising the policy shift of the government on educational expenditure.

The study will also be of great importance to policy makers because it will help them see the impact of education on national development and will help them make policy adjustments concerning the education sector.

The study will also benefit the education authorities and administrations, as this will propel reforms and transformation where necessary.

The general populace, those who seek to gain knowledge about the educational system will also benefit from the findings of the study.

The aspiring researches will also find the findings of the study as a store of knowledge for further studies.

1.7     Scope of the Study

The surge in the number of graduate unemployed in Nigeria in recent times has put a question mark on the quality and employability of Nigerian graduates. It has been widely reported that employers are dismayed with the caliber of graduates coming for interview. It is being argued that the increased quantity has led to a drop in quality. Besides, the dwindling funding of education by the government has also been identified as a major cause of graduate unemployment in the country. It is in this wise, therefore, that the scope of this study is based on the examination of government educational expenditure as it improves the educational sector. The empirical analysis is being restricted to the period between 1986 – 2012.


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