The study examine the impact of Human capital development on the Nigerian economic growth, from 1981 – 2014. The objectives of the study are; to examine the impact of human capital development on the economic growth of Nigeria, to examine the long-run relationship between human capital development and the Nigerian economic growth. Thus, economists observed that the development and utilization of human capital is important in nation’s economic growth. However, the illiteracy rate in Nigeria is high and many workers are unskilled, leading to their low productivity; hence, this study with the aid of OLS and co-integration method used shows the relevance of human capital development to the growth of the economy. The findings confirm that there is strong positive relationship between human capital development and economic growth. Following the findings, it was recommended that; there is need to understand the endemic problems endangering human capital development. This will help to ascertain the pragmatic step in proffering solution to it. Government should channel funds to programmes that will encourage training of skills as this will help to improve human resources. Efforts should be geared towards improving the standard of education in Nigeria, and Substantial amount of government budgetary allocation should be directed towards the educational sector.
1.1 Background to the Study
The major source of per capita output in any country, whether developing or developed, with a market economy or centrally planned is an increase in productivity. Per capita 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. Equipment and technology are products of human minds and can only be made productive by people. The success of any productive program depends on human innovative ideas and activity (Adelakun, 2011). The concept of human capital refers to the abilities and skills of human resources of a country, while human capital formation 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 (Okojie, 1995).
Human resources is all embracing, that is, it is inclusive of persons who works now, or are likely to be productively employed sooner or later. It is a continuum, a continuing process from childhood to old age, and a must for any society or enterprise that wishes to survive under the complex challenges of a dynamic world; Yesufu (2000), in agreement with this view, opines that “the essence of human resources development becomes one ensuring that the workforce is continuously adapted for, and upgraded to meet the new challenges of its total environment”. This implies that those already on the job require retraining, reorientation or adaptation to meet new challenges. This special human capacity can be acquired and developed through education, training, health promotion, as well as investment in all social services that influence man’s productive capacities (Adamu, 2003).
Dees and Picken, (2000) has it that ‘human capital is generally known to consists of the individual’s capabilities, knowledge, skills and experience as reservoir of knowledge, skills and experience through individual learning. 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. No country has achieved sustained economic development without substantial investment in human capital. In the past, much of the planning in Nigeria was centered on the accumulation of physical capital for rapid growth and development, without the recognition of the important role played by human capital in the development process (Oboh, 2010)
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. The implication of Lucas’ hypothesis on human capital is thus associated with investment in man and his development as creative and productive resources (Harbison, 1962).
The importance of human capital development to economic growth has been a motivating factor for scholars to examine the subject matter. For instance, several studies in Nigeria have examined, among other important issues, the nature of causality between human capital development and economic growth in Nigeria (Awe and Ajayi, 2010); the contributions of human capital to economic growth in Nigeria (Ogujiuba and Adeniyi, 2004; Omotor, 2004; Olaniyan and Okemakinde, 2008; Lawanson, 2009; and Diawara, 2009), the role of human capital in Nigeria’s economic development (Dauda, 2010), and human capital development challenges in Nigeria (Ugal and Betiang, 2003). These studies provide both theoretical and empirical foundation for the contributions of human capital to economic growth.
Human capital is the term economists often use for education, health, and other human capacities that can raise productivity when increased. Health and education are two closely related human capital components that work together to make the individual more productive. Taking one component as more important than the other is unrealistic as a more educated individual, who is ill, is as inefficient as an illiterate, but healthy individual will be more efficient. Both components are thus related together.
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. Health and education are often subsidized by the state and in some countries, education is compulsory for certain minimum length of time. The belief in human capital as a necessity for growth started in Nigeria during the implementation of the 1955-1960 Development Plan.
Expenditure on education became a matter of serious consideration from 1960 due to the Ashby Commission Report on (investment in education) which led to increase in the university places available to Nigerians. Today with the importance of knowledge in the economy, human capital has increasingly attracted both academic and public interest. 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.
However, UNICEF in its’ State of the world’s Children’s Report for 1999 pointed out that about four million Nigerian children have no access to basic education, and that majority of those that manage to be in schools are given sub-standard education (Akhaine, 1999). Today, there are over 48,242 primary schools with 16,796,078 students in public schools and 1,965,517 in private schools in Nigeria. In addition, Nigeria has over 7,104 secondary schools with 4,448,981 students (The Guardian, May 6, 1999 and Dike, 2001). Funding has been in response to conditionalities imposed by international financial institutions (IFIs).
Available statistics shows that federal government expenditure on education between 1997 and 2000 has been below 10% of overall expenditure. Moreover the national expenditure on education cannot be computed because various states expenditures on education cannot be determined, in relation to the UNESCO recommendation of 26% of national budgets (Igbuzor 2006). The Federal Government reformed agenda is anchored on the National Economic Empowerment Development Strategy 2002 (NEEDS) document. It was indicated that adult literacy rate of at least 65% by 2007 would be attained. The NEEDS recognized the centrality of human capital development towards achieving economic growth. It was described as a vital transformational tool. Therefore, the strategy aims at empowering the citizenry to acquire skills and knowledge that would prepare them for the world of work. Using the UNESCO latest report 2010, clearly Nigeria is still very far from meeting the global economic development target of 2015 (Oboh, 2010).
1.2 Statement of the Problem
Many developing countries, including Nigeria, are currently undergoing substantial macroeconomic reforms. It is not clear how such programs are affecting human capital development and hence longer-term economic growth. The dominant view among scholars as well as public policy makers is that government can play a very important role in economic development, as fiscal policy is an important instrument because it enables government to intervene in the economy. However, the impact of human capital development on economic growth is not without controversy in empirical literature. On the one hand, some researchers conclude that human capital development has a positive effect on economic growth (Olugbenga and Owoye, 2007; Ranjau and Sharma, 2008). On the other hand, others posit that the human capital development tends to exert a negative impact on economic growth for many developed and less developed countries (Alexander, 1990; Olopade and Olopade, 2010; Abu and Abdullahi, 2010; Akpan, 2005). Ram (1986), however, could not detect any consistent causal pattern between human capital development in terms of government expenditure and economic growth of both developed and developing countries. An increase in the human capital expenditure increases the level of economic growth. Consequently, in line with the development aspiration of Nigeria as encapsulated in Nigeria’s Vision 20:2020, the gap between human capital expenditure and economic growth must of necessity be bridged to allow for the mobilization of requisite resources to cater for the higher investment demand in the vision.
Thus, it is important to monitor trends in the levels and composition of human capital development, and to assess the causes of change over time. It is even more important to analyze the relative contribution of various sectorial expenditures to economic growth, as this will provide important information for more efficient targeting of these limited and often declining financial resources in the future.
Governments in Nigeria, for instance, over the years have been making frantic efforts at ensuring that there is an increase in the level of human capital development. Government expenditure on education and health has been on the increase in absolute and relative terms. For instance, from 1970 to 1975 the sum of N18.402 million was budgeted for the education sector in Nigeria. But from 1976 to 1980, education budget rose from N18.402 billion to N37.7 million (about two hundred percent in five years) (CBN, Statistical Bulletin 2000). It rose to N58.733 from 1981 to 1986. From 1987- 1991 education budgetary provisions rose to N75.279 million and recorded a phenomenal rise to N87.341 million from between 1992-1995. It jumped to N102.285 billion between 1996- 2000. From 2001 to 2008, it rose to N605.899 billion, about eight hundred percent increase in seven years. Within the period under review, the budgetary allocation to the education sector stood at N1.9 trillion (CBN, 2013).
It should however be noted that despite the increase in government effort to ensure sustainable human capital development and the purported growth in the Nigerian economy, the contribution of this growth to the welfare of average Nigerian is still marginal whereas the extent and magnitude of its impact on economic growth is below expectation .This is particularly worrisome as several questions have been raised on the situation. What has been the effect of human capital development in Nigeria? How has government expenditure impacted on sectors such as education and health? Is there any relationship between the pattern of human capital development and the rate of economic growth in Nigeria?
In the health sector the budget provision stood at N8500 million by1975 increased to N79.2 million between 1976 and 1980. It increased to N99.87 million from 1981-1985. It increased again to N118.324 million from 1986-1990 before jumping to N120.056 million between 1991 and 1995. Health budget increased again to N162.247 billion from 1996 -2000. It rose significantly to N567.923 billion between 2001- 2008. Available statistics show that total budgetary allocation to health from 1970 to 2013 stood at N846.9 billion. In all, the overall budgetary provision to human (human) capital sector within the period under review amounted to N2.9 trillion. This is far bigger than the total National Budget of Nigeria in 2008 for instance which was slightly above N2.3 trillion (CBN, 2009).
Despite the huge budgetary provisions and subsequent investments in education and health over the years the level of human capital development in Nigeria and its effect on economic growth appears not to be encouraging. Nigeria still records high level of illiteracy rate, high level of infant and maternal mortality rates and, of course, staggered economic growth. Rising government expenditure has not translated to meaningful growth and development, as Nigeria ranks among the poorest countries in the world. In addition, many Nigerians have continued to wallow in abject poverty, while more than 50 percent live on less than US$2 per day. Coupled with this, is dilapidated infrastructure in education and health that has led to the collapse of many industries, including high level of unemployment. Moreover, macroeconomic indicators like balance of payments, import obligations, inflation rate, exchange rate, and national savings reveal that Nigeria has not fared well in the last couple of years (CBN, 2013).
The challenge on how to determine the effect of total health expenditure on economic growth is important f
or its amelioration. It is therefore necessary to determine the extent to which public aggregate and sectoral expenditures have impacted on economic growth. This is why this study is on the effects of human capital development on economic growth using public expenditures on health and education as the benchmark indicators of human capital development. Hence this study aims at investigating the effects of human capital development on economic growth in Nigeria (1980-2015).
1.3 Research Questions
In this study the following research questions are posed:
- Is there any significant long-run relationship between human capital development and economic growth in Nigeria?
- Has expenditure on education any significant impact on economic growth in Nigeria?
- Has expenditure on health any significant impact on economic growth in Nigeria?
1.4 Objectives of the study
The broad objective of this research is to examine the impact of human capital development on the growth of Nigeria economy. The specific objectives of the study include to:
- Determine the extent to which significant long-run relationship exist between human capital development and economic growth in Nigeria.
- Ascertain if expenditure on education has significant impact on economic growth in Nigeria within the period under review.
- Investigate if expenditure on health has significant impact on economic growth in Nigeria within the period under review.
1.5 Statement of Hypothesis
Following from the objectives and research questions the following hypotheses are stated in its null form.
- H0: There is no significant long-run relationship between human capital development and economic growth in Nigeria.
- H0: Education expenditure has no significant impact on economic growth in Nigeria.
- H0: Health expenditure has no significant impact on economic growth in Nigeria.
1.6 Significance of the Study
The study is important for several reasons. To the government, it will provide veritable policy choice in both education and health sectors. To development agencies, it will provide necessary information for intervention in the human capital development efforts of the country. To researchers, it will provide an updated reference material for further research since it adds to existing literature on the subject.
1.7 Scope and Limitation of the Study
The study covers two major components of human capital development, that is expenditure on education and health and their impact on economic growth in Nigeria from 1980-2015. Government Expenditure on health and education from 1980-2015 were used as proxies for human capital development while gross domestic product (nominal) is used as proxy for economic growth.
However, the inconsistencies of the data from the CBN statistically bulletin posed as one of the limitations of the study. Thus, in the data sourcing careful attention was made to circumvent the problem by observing the trend of the series. More so, time and finance equally constrained the scope of activities for this study like travelling to hinterlands to obtain first-hand information as regards to human capital development in Nigeria. However, to overcome these problems, secondary data from the CBN Statistical Bulletin breached the gap.