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THE IMPACT OF HUMAN CAPITAL ON ECONOMIC GROWTH IN NIGERIA (1981-2016)

ABSTRACT

The study examined the impact of human capital and physical capital on economic growth in Nigeria between 1981 and 2016. In specific terms, the study investigated the extent to which government expenditure on education and health and gross capital formation influenced economic growth in Nigeria. Human capital is instrumental in tackling poverty and unemployment, promotes economic growth, and equips the labour force with modern skills and competencies. Contemporary discussions on human capital and economic growth are dominated by three theories namely human capital theory, modernization theory and dependence theory. The theoretical underpinning of the study is predicated on the augmented Solow growth model. The Solow growth model posits that national output (Y) is driven by technical progress (A), physical capital (K) and human capital (HL). Based on this, economic growth represented by real GDP was expressed as a function of gross capital formation (proxy as physical capital) and government expenditure on education and health were proxy as human capital. The ADF test revealed that all the variables except real GDP are stationary at level while real GDP is stationary at first difference. It was found that there is long-run relationship between economic growth, human capital and physical capital in Nigeria. Furthermore, the coefficient of ECM indicates that speed of adjustment from short-run to long-run equilibrium is 2% per annum. Government expenditure on education had a significant negative impact on economic growth in Nigeria. Government expenditure on health had an insignificant positive impact on economic growth in Nigeria while gross capital formation exerted non-robust positive effect on economic growth in Nigeria. The study concluded that human capital and physical capital did not significantly improve the level of economic growth in Nigeria between 1981 and 2016 mainly because successive governments within these periods paid little or no attention to human capital development. The study suggested that; Efforts should be geared towards improving the standard of education in Nigeria. Substantial amount of government budgetary allocation should be directed to the educational sector; There should be establishments of special agencies with the responsibility of improving the skills and capabilities of human capital; An enabling environment of macroeconomic stability should be provided by the government to encourage investment in human capital by the private sector and government.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The general rate of development in any country is always limited by the shortage of productive factor. One scarce factor associated with underdevelopment, which is often singled out in programming for development is capital. There is an assumption that growth hinges on capital accumulation and that additional capital will either promote or facilitate a more rapid of economic development. Overtime, various scholars have affirmed the role of human capital on economic growth. Human capital is considered as the most valuable asset and needs to be mobilized (Awopegba, 2003). Human capital as an economic term encompasses health, education and other human capacities that can raise productivity (Todaro and Smith, 2003). Capital and natural resources are passive factors of production while human resources are active factors of production. Human capital constitutes the most valuable resource of a country; in its absence there will be the non performance of physical capital (tools, machinery, and equipment) which will impede economic growth (Harbison, 1964).

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. 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. Lack of funding is the major problem of human capital. This has led to shortage of skilled personnel, unemployment and above all poverty. There can be no significant growth in any country without adequate investment in human capital. A typical example is the Asian tigers; Taiwan, Singapore; whose economies experienced sharp improvements via substantial investment in human capital. 

Human capital investment is crucial in the growth process of the Nigerian economy.Looking at Vision 20:2020 which 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.As a result of this, this research work will greatly explore the contribution of health and education in the growth process of Nigeria.To this effect, this study seeks to explain further and identify some problems of human capital and economic growth in Nigeria. Also building on earlier research projects and study, this study sets to deepen our understanding and expose us to more facts in terms of benefit and economic advantage that citizen will benefit if the government choose the right and effective policies in developing human capital that will promote economic growth and development. The broad objective of this study is to evaluate and analyze the impact of human capital investment on economic growth in Nigeria. In line with this broad objective, the specific objectives are to determine the relationship between investment in education, health and economic growth in Nigeria.

1.2 Statement of the Problem

In Nigeria the high level of unemployed graduate and mass under unemployment, 38% in 2016 (World Bank, 2017), which is manifested in low per capita income of Nigeria could be attributed to the neglect of the human capital development of the nation. Another issues of concern is, why should Nigeria be tagged a developing country in the face of such high number of universities, polytechnics, universities of science and technology and college of education that bound in the country? In Nigeria few of the industry outfits available are either operating below full capacity level or at verge of being shutdown, increasing unemployment in the country.

Nigeria is dominated by a good number of tertiary institutions characterized by poor infrastructural facilities and un-conducive environment for learning. No internet access, lack of research and development centre’s (R&D), and regular industrial dispute disrupting the academic calendars. No country has ever achieved sustained economic development without huge investment in her human capital which is manifested in expenditure on education and health. All the developed economies recognized these and this account for huge investment in education. On the other hand the developing countries have paid little attention to their human capital which is the reason while they are still referred to as under-developed countries. Poor investment in human capital development in Nigeria have led to a situation of mass unemployment in the country, low per capita income, poor standard of living which is the major concern of many policy makers and researchers all over the world. Or why should Nigeria be called under-developed country in the face of many natural endowment which if properly utilized can increase the country growth and consequently increase human development in general.

However, in spite of the increased academic interest in the subject under discussion, several issues relating to the human capital development and economic growth relationship remain hitherto unsettled. Chief among these issues relate to the fact that the empirical linkage between human capital development and economic growth in Nigeria is yet unclear. This is because a good number of studies that have examined the influence of human capital development on the Nigeria’s economic growth have generated varying outcomes (Lawanson, 2009; Adelakun, 2011). Furthermore, while a long run relationship has been established between human capital development and economic growth in Nigeria, the impact of disaggregation of capital and recurrent expenditures on health and education respectively has not been sufficiently addressed by researchers. This study is therefore carried out to fill some of these gaps. It is designed to estimate the impact of human capital development on economic growth. These and other related issues are the main problems that motivate the researcher to embark on this study.

1.3   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. More specifically, the research seeks to:

To examine the impact of government expenditure on education on economic growth in Nigeria.

To examine the impact of government expenditure on health on economic growth in Nigeria.

To assess the impact of gross capital formation on economic growth in Nigeria.

1.4   Research Questions

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

I. To what extent has government expenditure on education influenced economic growth in Nigeria?

II. To what extent has government expenditure on health affected economic growth in Nigeria?

III. To what extent has gross capital formation influenced economic growth in Nigeria?

1.5   Research Hypotheses

This investigation will test the following propositions as denoted by the null (Ho)

H0: Government expenditure on education has no significant impact on economic growth in Nigeria.

H0: Government expenditure on health has no significant impact on economic growth in Nigeria.

H0: Gross capital formation has no significant impact on economic growth in Nigeria.

1.6     Significance of the Study

The objective of this study is to critically evaluate the effect or impact of human capital development on economic growth in Nigeria. This would help to better understand and appreciate how human capital development affects economic growth. At the individual level, this study would enable people to understand and appreciate the relevance of developing human capital in a bid to achieve economic growth. For the government, it would provide a framework for policy formulation and implementation. For future study and knowledge, the research work will serve as a stimulant to other thesis for other researchers.

1.7 Scope of the Study

The study examined the impact of human capital and physical capital on economic growth in Nigeria. The study covered a time-period of 36 years ranging between 1981 and 2016. The time frame is considered suitable for the study because it covers the pre and post deregulation era.

1.8   Justification for the study

The human capital industry has little effect on economic development and by so the reason to this is to show why human capital in the country is poor. To justify this we are going to justify the reason why human capital is low and how to improve the level of human capital.

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