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THE ROLE OF HUMAN CAPITAL DEVELOPMENT IN ECONOMIC DEVELOPMENT

ABSTRACT

Although several theories of growth point towards a positive effect of human capital on growth, empirical evidence on this issue has been mixed. Using the Correlation and Regression analyses, this work examines empirically the role of human capital in Nigeria's economic development. Empirical results indicate that there is, indeed a long-run relationship among labour force, physical capital investment proxied by real gross domestic capital formation, human capital formation, proxied by enrollment in educational institutions and economic growth in Nigeria. Findings show that there is a feedback mechanism between human capital formation and economic growth in Nigeria, Thus, the policy implication of the findings is that government should place a high priority on human capital development. Efforts should be intensified to increase investment in human capital to achieve the growth which would engender economic development. Most importantly, education should be given prominence in Nigeria's developmental efforts. This would propel the economy to higher level of productivity.

 CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND TO THE STUDY

The role of human capital in economic growth cannot be overemphasized. The development of human capital has been recognized by economists to be a key prerequisite for a country's socio-economic and political transformation. Among the generally agreed causal factors responsible for the impressive performance of the economy of most of the developed and the newly industrializing countries is an impressive commitment to human capital formation.

(Adedeji and Bamidele, 2003; World Bank, 1995, Barro, 1991). This has been largely achieved through increased knowledge, skills and capabilities acquired through education and training by all the people of these countries.

It has been stressed that the differences in the level of socio-economic development across nations is attributed not so much to natural resources and endowments and the stock of physical capital but to the quality and quantity of human resources. According to Oladeji and Adebayo (1996) human resources are critical variables in the growth process and worthy of development. They are not only means but, more importantly, the ends that must be served to achieve economic progress. This is underscored by Harbinson (1973) who opined that "human resources constitute the ultimate basis for the wealth of nations. Capital and natural resources are passive factors of production: human beings are the active agents who accumulate capital, exploit natural resources, and build social, economic, and political organizations. And carry forward national development. Clearly a country which is unable to develop the skills and knowledge of its people and to utilize them effectively in the national economy will be unable to develop anything else".

Nigeria's most glaring objective since independence in 1960 has been to achieve stability, material prosperity, peace and social progress. However, this has been hampered as a result of internal problems. These include inadequate human development, primitive agricultural practices, weak infrastructure, and uninspiring growth of the manufacturing sector, a poor policy, inadequate regulatory environment and mis-management and misuse of resources (corruption). In order to ensure the economy delivers on its potentials, 'the country experimented with two development philosophies-a private sector-led growth in which the private sector served as the "engine house" of the economy and a public sector - driven growth in which the government assumed the "commanding heights" of the economy. The initial low level of private sector development, however, led to public sector dominance of the economy, encouraged by growth in the oil sector (UNDP, 2009).

It is noteworthy that since the advent of civilian rule in 1999, growth performance has improved significantly. The last seven years witnessed an average growth rate of about 6 percent (UNDP, 2009:5; CBN, 2008) However, economic growth has not resulted in appreciable decline in unemployment and poverty prevalence. Human development has remained unimpressive as shown by the indicators in Table 1.

Table 1: Nigeria's Human Development Summary Statistics by Zones, 2009

Zones

Human

Human

Gender

Gender

Inequality

Development

Poverty

Development

Empower

Measure

Index

(HDI

Index

Measure

ment

(INQ)

Value)

(HPI)

(GDM)

Measure

(GEM)

North Central

0.490

34.65

0.478

0.244

0.49

North West

0.420

44.15

0.376

0.117

0.44

North East

0.322

48.90

0.250

0.1.18

0.42

South West

0.523

21.50

0.507

0.285

0.48

South East

0.471

26.07

0.455

0.315

0.38

South South

0.573

26.61

0.575

0.251

0.41

Source:       UNDP (2010:5) Summary: Human Development Report Nigeria 2009-2010, UNDP, Abuja

1.2     STATEMENT OF THE RESEARCH PROBLEM

Over the years, successive Nigerian governments recognized the importance of human capital formation in the development process and have embarked on various programmes and projects which led to the establishment of educational institutions and health Centre’s throughout the country. However, in the late 1970s and early 1980s, federal government spending grew substantially resulting in fiscal crisis, inflation, and heavy borrowings.

Subsequently, through the austerity measures adopted in 1982 and Structural Adjustment Programme (SAP) introduced in 1986, the country attempted to bring down fiscal deficits as part of its stabilization and adjustment programmes, often by reducing public spending on across-the board basis. These reductions resulted in unprecedented economic and social costs as human resources development was neglected with adverse long-term development consequences (Oyinlola and Adam, 20_03). Thus, the ultimate goal of economic development which underscored the need to improve the well-being of people was overlooked.

In more recent times, renewed attention was paid to the role of human capital formation in the country's development process and this has prompted the federal government to declare in its 1999-2003 economic policy programme that "the economy exists for and belongs to the people, and at all times the general well-being of all the people shall be the overriding objectives of the government and the proper measure of performance" (FGN, 1999). This .policy statement of the government is further reiterated in the National Economic Empowerment and Development Strategy (NEEDS). The provision of high-quality education and health care to all the country's citizens is considered a key element of public policy by all levels of government. Also, in the early part of this year, just before the general election, President Good luck Jonathan approved the establishment of new universities in order to enhance access to tertiary education and thus boost human capital development. Though, the wisdom behind the creation of new universities, to satisfy political needs, when the existing ones are grossly under-funded, is questionable.

Against this background, there is the need to examine if there truly exists a relationship between human capital development and economic development on the one hand, and also determine if investment in education and health care has really been boosting human capital development.

1.3     OBJECTIVES OF THE STUDY

Following are the objectives for which this work is done.

· To examine the impact of human capital formation on economic development in Nigeria between 1983 and 2010;

 To determine if investment in education has been appropriately leading to economic development;

· To establish if there exists a link between health care development and economic development;

·             And on the basis of the findings, recommend policies and measures for improving human capital formation in the country.

1.4     STATEMENT OF THE RESEARCH QUESTION

As a follow up to the preceding objectives, the following are the appropriate research questions.

·        Is there a significant relationship between human capital formation and economic development in Nigeria?

·        Is the relationship between investment in education and economic development significant?

·        Is there a significant relationship between health care development and economic development?

1.5     STATEMENT OF THE RESEARCH HYPOTHESES

In order to be able to provide answers to the questions stated above, the following null and alternative hypotheses are tentatively stated.

Hypothesis I

H0: There is no significant relationship between human capital formation and economic development in Nigeria between 1983 and 2010.

HI: There is a significant relationship between human capital formation and economic development in Nigeria between 1983 and 2010.·

Hypothesis II

H0: The relationship between investment in education and economic development in Nigeria is not significant.

HI: The relationship between investment in education and economic development in Nigeria is significant.

Hypothesis III

H0: There is no significant relationship between health care development and economic development.

HI: There is a significant relationship between health care development and economic development.

1.6     SOURCES OF DATA AND METHODOLOGY

The data for this study would be obtained mainly from secondary sources, particularly from Central Bank of Nigeria (CBN) publications and that of the Federal Office of Statistics and relevant journals, textbooks and financial newspapers. The data to be collected include: gross domestic product (which is used to denote economic development), enrolment in educational institution, which is used to denote human capital formation; and spending on education and health care development.

The research work will make use of the Statistical packages for Social Sciences (SPSS) in estimating the relationship between the variables as proposed by the respective hypothesis. The Ordinary Least Square (OLS) technique will be employed in obtaining the numerical estimates of the coefficients in the model to be formulated. The OLS method is chosen because it possesses some optimal properties; its computational procedure is fairly simple and it is also an essential component of most other estimation techniques. The estimation period will cover 1983 through 2010.

1. 7    SCOPE OF THE STUDY

The economy is a large component with a lot of diverse and sometimes complex parts such that a lot of variables do interplay in order to initiate the development process. This work will however limit its searchlight on the contribution of human capital development/formation on economic development. Also, human capital formation is a variable that is largely dependent on a host of factors other than educational and health care development. Yet, these two are chosen because they are considered to be the most important determinant of human capital formation. Thus, the scope of this work is defined by the chosen variables.

1.8     SIGNIFICANCE OF THE STUDY

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