ABSTRACT
Human capital is an important factor used in converting all resources to mankind’s use and benefit. This study is undertaken to examine the impact of human capital development on economic growth in Nigeria using time series data spanning from 1980 to 2015, which were sourced from the CBN Statistical Bulletin and National Bureau of Statistics. The basic objective of this study investigated the correlation between human capital development and economic growth in Nigeria. The Ordinary Least Square (OLS) statistical technique was employed in analysing the data. The findings in the study review that there a significant relationship between human capital and economic growth. Based on the findings, it was recommended that the government should formulate policies that would increase government expenditure on education with special interest in the efficiency and outcome of such increase in expenditure and also to ensure that the resources are channelled towards the right direction for the desired level of productivity to be achieved. Also effort should be made by the government of Nigeria to consistently drive the economy towards the development of human capital for the desired level of growth in the economy to be achieved.
CHAPTER ONE
INTRODUCTION
1.1 Background of 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. It will however be an oversimplification to regard economic development as a matter of capital accumulation alone.
The major source of per capital output in any country, whether developing or developed, with a market economy or centrally planned is an increase in productivity. Per capital output growth is however an important component of economic welfare, (Abramowitz, 1981). It has been revealed that human beings are the most important and promising source of growth in productivity and economic growth.
There can be no significant economic growth in any country without adequate human capital development. In the past decades, much of the planning in Nigeria was centered on the accumulation of physical capital for rapid growth and development, without due attention recognition of the important role played by human capital in the development process. Human capital of a nation is understood from the perspective of health, education and life expectancy of the population. Education and health are basic objectives of development; they are important ends in themselves. Education and health are closely related components of the human capital that work together to make individuals more productive. Health is central to well-being, and education is essential for a satisfying and rewarding life; both are fundamental to the broader notion of expanded human capabilities that lie at the heart of the meaning of development (Todaro and Smith, 2011). Improving the quality of education and health is not only an end itself, it also positively affects the future growth prospects of a country.
According to Otu and. AdenugaIt is found that investment in human capital, through the availability of infrastructural requirements in the education sector accelerates economic growth. The physical capital formation proxied by real gross capital formation is correctly signed, and statistically significant at 1 per cent level of significance. It indicates that it has a significant impact on Nigeria’s economic, growth. Economists around the world keep on understanding various determinants of economic growth. The Harrod Domar growth model was based on the accumulation of physical capital stock which in turn depends on physical capital shifted to the human capital as an important variable that determine growth.
Appleton and Teal (1998), describe health and education as components of human capital that are contributors to human welfare. They describe these components as different from other types of goods produced in societies. While high incomes may be conducive to health, it cannot be directly purchased like material goods and services. No country has achieved sustained economic development without substantial investment in human capital.
Several studies have evolved to analyse the channels through which human capital can affect growth (surveys include Barro and Salai-i-Martin, 1995; and Temple, 1999).Many of the literature emphasized the complementary relationship between human and physical capital, noting how imbalances in these two stocks, as well as human capital externalities, can affect economic growth. The highly educated, such as scientists and technicians, appear to have a comparative advantage in understanding and adapting new or existing ideas into production processes. Human capital development has been described as an end or objective of development. It is a way to fulfil the potentials of people by enlarging their capabilities, and this necessarily implies empowerment of people, enabling them to participate actively in their own development. Human capital development enhances the skills, knowledge, productivity, creativity and inventiveness of people. Thus, human capital development is people and not goods or production-centred strategy of development. Essentially, it is the empowerment of people to identify their own priorities and implement programmes and projects of direct benefit to them. This in turn implies the active participation of people in the development process and the consequent need to evolve institutions that permit and indeed encourage that participation. Therefore, human capital is considered as the most valuable asset and needs to be mobilized, developed and empowered to participate fully in all socio-economic activities.
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. One of the reasons for Nigeria’s unemployment, high level of poverty, unsustainable growth is that technical know-how and skills usually come with foreign physical capital which is yet insufficient for diverse and varied requirements of Nigeria’s growth and development. Moreover, less developed countries in which Nigeria inclusive are characterized by economic backwardness which manifests itself in low labour efficiency, factor immobility, and limited specialization in occupations, deficient supply of entrepreneurship and customary values and traditional social institutions that minimize the incentives for economic change.
Economic growth is a vital issue to the developmental processes of any nation in the world. Various factors have been considered as the determinants of economic growth of any country. Among these factors are level of capital stock of a country, saving rate, efficiency of labour, external link with other country of the world by a particular country, the level of human capital investment in education and health of concerned country etc.
Economic growth is defined as the process whereby the real per capital income of a country increases over a long period of time. Economic growth is measured by the increase amount of goods and services produced in a country, a growing economy produces more goods in each successive time period. This growth occurs when an economy produce more goods and services. In its wider aspect, economic growth implies raising the standard of living of the people and reducing inequalities of income distribution. While Economic development means growth plus changes. It involves change in people’s attitude, change in people’s standard of living and equitable distribution of available resources. The stock of human capital, like the stock of natural and physical capital, will reduce and decay if not increased and maintained through improvements in public health and sanitation, social welfare services, good nutrition, etc.
The concept of human capital refers to the abilities and skills of human resources of a country, while human capital development refers to the process of acquiring and increasing the number of persons who have the skills, education and experience that are critical for economic growth and development of a country’s economy (Okojie, 2005). Also, Ejere (2011) posited that human capital refers to the human factor in the production process; and consists of the combined knowledge, skills or competencies and abilities of the workforce. Of all factors of production, only human beings are capable of learning, adapting or changing, innovative and creative. The significance and relevance of human capital development in the achievement of meaningful and sustainable economic growth and development have been widely acknowledged in various studies. The totality of the effort and cost involved in this massive upgrading of the productive capacity of the people constitutes investment in human resources, which is also referred to as manpower development or human resources.
Human resources are all embracing, that is, it is inclusive of persons who work now, or are likely to be productively employed sooner or later. So it can be said that human capital formation is a continuation process from childhood to old age, and a must for any society that wishes to survive under the complex challenges of a dynamic world. In an agreement with this view. Yesufu (2005) says that ‘the essence of human resources development becomes one of the ways of ensuring that the workforce is continuously adapted for, and upgraded to meet the new challenges of its total environment’. This is because the economy is a dynamic entity, which is constantly changing in response to various stimuli such as introduction and discoveries of new products or technique of production. This special human capital can be acquired and developed in different ways, namely; training, promotion, as well as investment in all social services that influence man’s productive capacities, including telecommunications, transport and housing. In the words of Yesufu (2005), ‘education and training are generally indicated as the most important direct means of upgrading the human intellect and skills for productive employment’. Human capital development is dynamic and multi- institutional, including the family, the educational system, formal and informal institutions, special professional and training organisations, enterprise, in-house arrangements, and even individual self- efforts.
The role of human capital in economic growth cannot be over emphasised. The development of human capital has been seen by developmental economist to be important and a precious assets for a country’s socio-economic and political transformation.
In furtherance of this, Schultz (2004) has identified five ways of developing human resources, namely;
(a) Investment in Health facilities and services, broadly conceived to include all expenditures that affect the life expectancy, strength and stamina and vitality of the people.
(b) On the job training, including old type of apprenticeship organized by firms.
(c) Formally organized education at the elementary, secondary and the higher levels.
(d) Study programme for adults that are not organized by firms, including extension programme notably in agriculture
(e) Migrating of individuals and families to adjust to changing job opportunities.
In recognition of the importance of human capital development, the United Nations Economic Commission for Africa has described human resources as the knowledge, skills, attitudes, physical and managerial efforts required to manipulate capital, technology, land and materials to produce goods and services for human consumption. (Awopegba 2002)
Human capital formation or development, following Harbison (1973), can be seen as the deliberate and continuous process of acquiring requisite knowledge, skills and experiences that are applied to produce economic value for driving sustainable national development. The significance and relevance of human capital development in the achievement of meaningful and sustainable economic growth and development have been widely acknowledged in various studies. In the absence of substantial investment in the development of human capital in any country, sustained economic growth and development would only be a mere wish, never a reality.
Education has positive impacts on the economy. Therefore, investment in education and training are imperatives if the aim to drive the economy to higher levels of productivity and income and thereby accelerate the rate of economic growth. Education increases the number of knowledgeable worker by improving their skills and enabling them to address new challenges, also education enhances their occupational mobility, reduces the level of unemployment in the economy, and increases the earning capacity and productivity of the country’s workforce. Improves access to health information which will increase life expectancy and also lower the fertility rate. Education also enhances income distribution and social equity. Human resources are critical variable in the growth process and worthy of development. They are not simultaneously the means but more importantly, the ends that must be served to achieve progress.
Human capital development has been severally emphasized in the development plans and has been aimed at providing efficient manpower in various areas of Nigeria’s socio-economic and other development needs. For instance, NEEDS stipulates a goal of increasing government’s budgetary allocation to health and education up to 10% between 2004 and 2007. While listing selected targets, education and health are rightfully noted as worthy of closer attention (Lawanson, 2009). Also, the thrust of the human capital development in the Vision 20; 2020 is building a productive, competitive and functional human resource base for economic growth and social advancement. The human capital and social development thematic area covers the eight critical social sectors of the economy which include; education, health, labour employment productivity; women affairs and social development, youth development, sports development; food and nutrition and social protection. The plan projects 611.658 billion naira total investment for education sector covering the plan period while that of health sector is 487.448 billion naira. For Nigeria to achieve effective measures that guarantee the well-being of its human capital stock, it is important to learn from previous policy outcomes vis-a-vis investment in human capital over the years.
Investment in human capital is also required to raise the general living standards of the people in LDCs. This is possible when education and training make fuller and rational utilization of surplus manpower by providing larger and better jobs opportunities in both rural and urban areas. This in turn, raise incomes and living standards of the people. Therefore, economists are of the view that it is the lack of investment in human capital that has been responsible for the slow growth of less developed countries (LDCs) such as Nigeria.
1.2 Statement of the Problem
In the general sense, it has been discovered that the Nigerian government has put in a huge amount of financial resources towards the development of capital. These can be seen in the increasing trend of government expenditure on health as well as education.
This has led to an increment in the number of schools established in the country and the establishment of health centres of various capacities. This is because human capital is one determinants of economic growth through acquisition of skills and knowledge and also efficient utilization of the resources which depends not only on the skills acquired through education but also on good and sound health.
The Nigerian government as well as non- governmental organisations have at various levels established a number of programmes and policies to develop and improve the education and health care systems in the country, knowing fully well that the level of productivities which depends largely on how resources are utilized efficiently can only be achieved when labour is equipped with essential and relevant skills. Despite the various efforts applied to the development of human capital through expenditure on education and health by the government and non- governmental organizations, resources are still inefficient in Nigeria and this contributed to problems of economic growth in Nigeria. Also, there has been the inability to effectively strategize on how to efficiently allocate resources to the health and education sector in order to enhance economic growth. The missing link in Nigeria however has been the inability of the country to ensure systematic, sustainable and strategic plan to make an enduring impact on human capital development for a sustainable economic growth that can lend ultimately to economic development.
1.3 Research Questions
In the light of the problem therefore, this study seeks to proffer answers to the following questions:
- Does human capital development have impact on economic growth in Nigeria?
- Does government expenditure on education have significant effect on economic growth in Nigeria?
- Does government expenditure on health have significant effect on economic growth in Nigeria?
- What is the correlation between government expenditure on human capital development and economic growth in Nigeria?
1.4 Objectives of the Study
The major objective of this study is to examine human capital as a key to Nigeria economic growth and development. Other secondary objective of this study will be:
- To examine the impact of human capital development on economic growth in Nigeria.
- To assess the effect government expenditure on education have on economic growth in Nigeria.
- To assess the effect government expenditure on health have on economic growth in Nigeria.
- To determine the correlation between human capital development and economic growth in Nigeria.
1.5 Hypotheses of the Study
The following hypothesis were put forth for this study:
- H0: The government expenditure on health and education has no significant effect on economic growth in Nigeria.
- H0: The correlation between government expenditure on human capital development has no significant impact on economic growth in Nigeria.
- H0: The effect of human capital development has no significant impact on economic growth in Nigeria.
1.6 Significance of the Study
This study will reveal the level of human capital investment in Nigeria, both in terms of the government financial outlays on education and health, and the actual resultant effect in terms of the actual school enrolment and the level of infant mortality rate as proxies for education and health respectively. It has been observed that investment in human capital contributes in numerous ways to the development of a general milieu favourable to economic progress. Apart from the extension of human capabilities. If it is ascertained that there exist a significance relationship between human capital development and economic growth in Nigeria, then the study will be of immense benefit to the government especially to economic policy-makers in planning appropriate policy measures to undertake in order to further enhance the capacity and skills of human capital in Nigeria. In recognition of the above, this study intends to carry out a detailed study on the current state of the nation’s human resource development and will also serve as a reference material for research purposes on human capital investment and economic growth in Nigeria. So this study will be useful to policy makers, economists, health and education experts, students and other stakeholders.
1.7 Scope of the Study
The study to be embarked upon is to examine the relevance of human capital development in the process of achieving economic growth in Nigeria. The study will cover the period between 1980 and 2015. This period is selected because of the availability of data, and to really examine government expenditure on health and education in the current period.
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