ABSTRACT

This study evaluated the influence of human capital development on economic growth in Nigeria. The study covers the period of 1981 to 2019. The study seeks to: examine the influence of education expenditure on economic growth in Nigeria; investigate the effect of school enrolments on economic growth in Nigeria; investigate the existence of long-run relationship between labour force and economic growth in Nigeria; determine the nature of the causal relationship between health expenditure and economic growth in Nigeria; and to determine the nature of the causal relationship between life expectancy at birth and economic growth in Nigeria. The study utilized the Ordinary Least Square technique and made use of cointegration and Granger Causality test to analyse the specific objectives. The variables include gross domestic product (a proxy for economic growth), government expenditure on health, government expenditure on education, life expectancy at birth, school enrolments, and labour force. The study found out that expenditure on education has a negative influence on gross domestic product. It has been also discovered that there exists a long run relationship between human capital development and economic growth. The Granger Causality test also reveals there is a causality between health expenditure and economic growth as well as between life expectancy at birth and economic growth. Meanwhile, no causality exists between primary school enrolment and economic growth. Since the expenditure on education exerted a negative influence on economic growth, the policy implication is expenditure on education have not been sufficient to trigger growth. Based on the findings, the study recommended among other things that the planned strategies of the government in the education and health sectors as enunciated in the National Economic Empowerment and Development Strategy document should be fully carried out with reports provided of progress made at each stage. The government should increase not just the amount of expenditure made on the education and health sectors, but also the percentage of its total expenditure accorded to these sectors. The study recommended that the ten percent benchmark proffered by the present National Plan should be adopted.

TABLE OF CONTENTS

Title Page i

Declaration

ii Certification

iii Dedication

iv Acknowledgement

v

Table of Contents vi

List of Tables

viii Abstract

xi

CHAPTER 1: INTRODUCTION

1.1 Background to the Study 1

1.2 Statement of the Problem 3

1.3 Research Questions

5

1.4 Objectives of the Study 6

1.5 Research Hypothesis

6

1.6 Significant of the Study 6

1.7 Scope of the Study

7

 

CHAPTER 2: LITERATURE REVIEW

2.1 Conceptual Framework

8

2.1.1. Human capital and human capital development

2.1.2. 8

Economic growth

2.2. 9

Theoretical Literature

2.2.1. 11

Traditional neoclassical model

2.2.2. 15

Human capital theory

2.2.3. 16

Education and Health as Joint Investments for Development

18

2.2.4 Investment in Education and the Rate of Returns to Education 19

2.2.5 Rationale for Public Intervention in Education and Health 21

2.3. Empirical Literature

22

2.4. Summary of Literature Reviewed 30

CHAPTER 3: RESEARCH METHODOLOGY

3.1. Research Design

36

3.2. Nature and Sources of Data 36

3.2. Model Specification 36

3.3. A priori Expectation 38

3.4. Analytical Technique 38

3.4.1. Objective 1 38

3.4.2. Objective 2 38

3.4.3. Objective 3 39

3.5 Diagnostic Test

40

CHAPTER 4: EMPIRICAL FINDINGS AND DISCUSSION

4.1 Descriptive Statistics 41

4.2 Correlation Analysis 42

4.3 Unit Root Test-

43

4.4 Influence of Education Expenditure and School Enrolment on Economic Growth in Nigeria

44

4.5 Cointegration Test for Long Run Relationship 46

4.6 Error Correction Model 47

4.7 Granger Causality Test 48

4.8 Policy Implication of Findings 49

CHAPTER 5: SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary 51

5.2 Conclusion 52

5.3 Recommendations 52

References

54

 

Appendices

60

 

LIST OF TABLES

PAGES

4.1 Descriptive Statistics of the Variables 41

4.2 Correlation Matrix 42

4.3 ADF Unit Root Test Result 43

4.4 OLS Estimates 44

4.5 Johansen Cointegration Test Result 46

4.6 Error Correction Mechanism 47

4.7 Granger Causality Test Result

CHAPTER ONE

INTRODUCTION

1.1.         BACKGROUND TO THE STUDY

The current trend in the global economy is an emerging knowledge based economy; hence, the development of skills and human capital have become a key issue for policy makers and economic development experts at both national and regional levels. Human capital resource in accelerating growth of any economy has been an object of discussion among many scholars and policy makers in economics and allied discipline for decades. Accumulation of physical capital was considered a near-singular factor for economic growth in the very past but with inquiry into the determinants of economic growth, human capital began to earn a pride of place among economic variables that promote economic prosperity of nations (Adawo, 2010).

In most cases, human capital has been identified as the best indigenous choice available for economic growth of any economy (Amir, Bilial & Muhammad, 2011). Amir, Bilial and Muhammad (2011) agrees with Kasim, Mori and Sylvia (2010) that human capital is the best indigenous choice available for economic growth, having observed that human resource has not only been a major factor for growth but of much importance in building or improving the quality of human beings in general. This is premised upon the fact that investment in human capital plays important role in improving competitiveness and quality of life of the populace. This observation is a follow-up to an early human resource development revolution which sparked off in mid 1950s with scholars like Swan (1956) and Solow (1957) playing prominent role. Their seminal research produced an exogenous growth model anchored within the shades of the Keynesians, Neoclassical, and Schumpeterian schools of though. The early neoclassical theory lays emphasis on exogenous demographic factors that affect the growth of nations which include population growth rate of nations, labour force and the rate of technology.

An early research effort by Schultz (1961), unravelling the importance of human capital in growth process suggests five categories of which human capital can be developed. These include health care, vocational training, and quality of education at all levels including continuing education programme for the adult. Others include extension programmes mostly in agriculture and job mobility and are all aimed at improving an individual‟s productive efficiency which lends support to economic growth of nations. It is therefore understandable why there has been persistent call on economies of the world specially developing economies to invest in human capital development; a call that has been considered in Nigeria‟s policy space over the years. This is reflected in various Nigeria‟s development plans such as the First (1962 – 1968), Second (1970 -1974), Third (1975 - 1980) and Fourth (1981 – 1985) national development plans. Others include Operation Feed the Nation of 1976, Green Revolution Programme of 1979 – 1981, and Structural Adjustment Programme of 1985 – 1993 (Dawodu, 2010).

More recent policy programmes of Nigerian government are the National Economic Empowerment and Development Strategy (NEEDS) of 2004 – 2008 and the current Vision 20:2020. With vision 20:2020, Nigeria plans to launch its economy among the twenty most developed countries in the world by year 2020. In effect, human capital development has been severally emphasized in these development plans and has been aimed at providing efficient manpower in various areas of Nigeria‟s socio-economic and other development needs (Oru and Kalu, 2016). For Nigeria to achieve effective measures that will guarantee the well-being of its human capital development, it is important to learn from previous policy outcomes and invest in human capital.

1.2.         STATEMENT OF THE PROBLEM 

Nigeria is abundantly blessed with enormous human and material resources that if properly harnessed, will launch the economy into the frontlines of economic development. However, Owolabi and Okwu (2010) observed that the country is severely rocked by socio-economic problems including that of human capital development. Nigeria is already the world‟s seventh largest country with about 191 million people, and it is projected that by 2050; it will have 391 million people making it the fifth most populous nation in the world after India, China, The United States, and Pakistan (World Population Report, 2017). As at 2019, the population of Nigeria was put at 200,963,603 indicating a 2.56% increase from 195,874,685 in 2018 (World Bank, 2020).

Over the years, government has increased budgetary allocations towards the improvement of education, health and other means of human capital development. UNESCO specified that developing nations should allocate at least 26 percent of their estimated budget to the education sector (UNESCO, 1997). Available evidence suggests that, while focused nations (including some in West Africa) are meeting or surpassing the benchmark set by UNESCO, Nigeria is far away from reaching this feat. Hence, the human development index of the country is very low. The data released by HDI indicated that the HDI of Nigeria only increased by 0.2% from 2016 to 2017 (Odigwe and Owan, 2019). Thus, it is unsurprising to see the so-called small countries like Kenya, Ghana, Cameroon, and even Equatorial Guinea, overtake Nigeria in terms of educational standing. These days many Nigerians now run to such small countries for education, and those with academic degrees from such countries are respected so much in Nigeria. The same politicians who refuse to fund the education sector now send their children/wards to foreign countries for education, due to the poor state of education in Nigeria.

Evidence from data revealed that the percentage budget allocation to the education sector was just 2.40% in 1988 but increased to 3.55% in 1989 with a downward trend to 2.83% in 1990. Also, the budgetary allocation stood at meagre 1.09% in 1991, 3.86% in 1992,

5.62% in 1993, 7.13% in 1994, and 8.19% in 1995. Between 1996 and 2000, the budgetary allocation to the education sector averaged just 7.33%. In the early 2000s, education allocation hovers between 1.82% (recorded in 2003) and 7.00% recorded in 2001; with an average of 5.15% between 2001 and 2005. Meanwhile, the value stood at 4.84% and 5.46% for 2006 and 2007 respectively. As at 2018, the budgetary allocation to the education sector stood at 7.00% and averaged 7.91% between 2009 and 2018. As at 2019, the total recurrent expenditure on the education sector was put at N593.33 billion.

The budgetary allocations indicate that the education sector had received paltry sums from the national budget between 1988-2019. The highest percentage allocated during this period was 10.28% which was allocated in 1998. The lowest allocation made to the education sector between 1998-2019 was 1.09% in 1991. All these figures including the highest allocation made, are well below the 26% advocated by UNESCO. This shows that education has not been adequately funded in Nigeria during this time period. Onuma (2016) reveals from his study that, Federal Government allocation fluctuated in the percentage of the total budget to education from 2.40% in 1988 to 8.09% in 2007. This shows an indication of underfunding of education in Nigeria.

Going to the health sector, the Nigerian health sector received a paltry N0.08 billion in 1981 but rose to a paltry N0.50 billion in 1990. Meanwhile, the total expenditure for the sector rose to N15.22 billion and N99.10 billion in 2000 and 2010 respectively. Between 2011 and 2019, the recurrent expenditure on the health sector averaged N243.80 billion (Central Bank of Nigeria, 2020).

Aigbokhan, et al. (2007) however, warns that the magnitude and trend of increases in allocation might be misleading in passing judgement on the budgetary performance until they are placed side by side with their percentage allocations, a closer look at the percentage allocation form the total budget shows a gross inconsistency; meaning that human capital development has not been a major policy target in the overall budgeting Lawanson (2009). Developing Nigeria‟s human capital is critical especially now that the country is aspiring to be among the twenty leading economies in the world. But this aspiration will be a venture in futility as long as human capital development is not accorded high priority. Human capital is therefore a prerequisite for Nigeria to become more competitive in the twenty-first century globalized economy which is skill and knowledge based. A country‟s competitiveness in the New International Economic Order (NIEO) is strongly connected to the quality of her human capital (Okojie, 2007). It is against the above background that this study will set out to provide valid empirical evidence on the effect of human capital development on economic growth in Nigeria.

1.3.         RESEARCH QUESTIONS 

The relevant research questions that guide the researcher to provide solutions to the problem under investigation are:

i.               What is the influence of education expenditure on economic growth in Nigeria?

ii.              Is there any significant effect of school enrolment on economic growth in Nigeria?

iii.            Is there any long-run relationship between labour force and economic growth in Nigeria?

iv.            In what way has the health expenditure Granger cause economic growth in Nigeria?

v.              Does life expectancy at birth Granger cause economic growth in Nigeria?

1.4.         OBJECTIVES OF THE STUDY 

The broad objective of this study is to evaluate the influence of human capital development on economic growth in Nigeria between 1981 to 2019. The specific objectives include:

i.               To examine the influence of education expenditure and school enrolment on economic growth in Nigeria.

ii.              To investigate the existence of long-run relationship between labour force and economic growth in Nigeria.

iii.            To determine the nature of the causal relationship between health expenditure, life expectancy at birth, and economic growth in Nigeria.

            1.5.         RESEARCH HYPOTHESIS 

The following null hypotheses will be tested: