CHAPTER ONE
INTRODUCTION
1.1 Background
of the Study
One of the challenges facing the global and national
communities is the problem of how to achieve a sustainable development. Several
studies have evolved to analyze the relative impact of human capital on the
economic growth of any economy. Barro and Salau-i-Martin (1995), and Temple
(1999). These studies emphasized on the complementary relationship between
human capital and physical capital, noting how variation in these stocks can
effect economic growth, which in turn is essential for sustainable development
of the economy.
Human capital plays a key role in
the versions of both neoclassical and endogenous growth models (Mankiw, Romer,
and well 1992; Rebelo 1991; Sianesi and van Reenen 2003). The critical
difference is that in the first group (neoclassical growth model), economic
growth is still ultimately driven by exogenous technical progress, whereas in
the second group (endogenous growth model) no additional explanation is needed
and human capital is much more important. Human capital is a broad concept that
identifies human characteristics which can be acquired and which also increases
income. It is commonly taken to include peoples knowledge and skills, acquired
partly through education, but can also include their strength and vitality,
which are dependent on their health, nutrition and skill. Human capital theory
focuses on health and education as inputs to economic production.
This is in contrast to the concept
of human development which views health and education as intrincisically
valuable outcomes to be placed along side economic production as measures of
human welfare.
There can be no significant economic
growth in any economy without adequate human resources. Human capital can
therefore be said to be the sum of the abilities and knowledge of individuals.
It measures the quality of labour supply and can be accumulated through
education, further education and experience. Education is an investment in
human capital, while learning is the process of acquiring knowledge or skills
through study, experience or teaching. Knowledge is the awareness and
understanding of interconnected facts, truths or information gained in the form
of experience, learning or introspection. According to Harbison, (1982), human
capital formation which is associated with investment in man as a creative and
productive resources, is a fundamental to a nation’s economic progress.
Human capital development refers to
the process of acquiring and increasing the number of persons who have skills,
education and experience which are necessary for the economic development of a
country. Investment in human capital refers to expenditure on health,
education, training and social services.
Human capital is a broad concept
which identifies human characteristics which can be acquired and which
increases income. It is commonly taken to includes peoples’ knowledge and skills,
acquired partly through education, but can also include their strength and
vitality which are dependent on their health and nutrition. Human capital
theory focuses on health and education as inputs to economic production, This
is in contrast to the concept of human development which views health and
education as intrinsically valuable outcomes to be placed along-side economic
production as measures of human welfare. In understanding the role of human
capital as input into development. It is necessary to consider the possible
links between human capital, other forms of capital, income and growth.
While it is true for every country
for which there is data that better and more educated individuals earn higher
income than less educated ones, hence it does not follow that there is a simple
relationship between investment in people and countries becoming richer. Human
and certain forms of physical capital may be complementary. The problem in
investing is to match skills with machines. It is not a question of either investing
in people or investing in machines, both are necessary. The more important is
the issue of how much to invest in alternative forms of capital equipment and
skilled labour. The answer to that question is unlikely to be the same for all
countries or to remain unchanged overtime. Moreso, other skilled labour that
helps for the growth of economy are welders, mechanics, carpinters,
panel-bitters etc
1.2 Statement
of the Problem
The sources of growth analysis has been employed to
show that the expansion of physical capital input alone responsible for about
half of the growth in aggregate income of nine developed countries 1960-1975.
similarly, the growth of the East Asian “miracle economics” has been shown to
owe much to high level of savings and investments in both physical and human
capital. Analysis of the relative contribution of human capital to growth in
developing countries is neither as numerous or as conclusive as those of the
United States and other developed countries. However, studies in middle income
countries such as the Philippines and Mexico indicated that in 1960’s and
1970’s, growth in the physical capital apart from growth in human capital,
might have contributed from one-fourth to one-third of income growth. The
contribution is as much as one-half in the poor income countries Todarro,
(2000). Following Barro (1991) and Mankiw, Romer, and Well (1992), there have
been an upsurge of empirical research on the effects of human capital on
economic growth.
Over the years, successive Nigerian
governments recognized the importance of human capital formation in the
developing process and have embarked on various programmes and projects which
led to the establishment of some educational institutions and health centers
throughout the country. However, in the late 1970s and early 1980s, federal
government spending grew substainlly resulting in fiscal crisis, inflation and
heavy borrowing.
Subsequently, through the austerity
measures adopted in 1982 and structural adjustment programme (SAP) introduced
in 1986, the country attempted to bring fiscal deficit budgeting as part of its
stabilization measures 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,
(2003). Thus, the ultimate goal of economic development which under scored the
need to improve the well-being of people was overlooked. The profile of
education in Nigeria has been observed to show a forward-backward movement,
although expanding over time. The enrolment in primary school was 12.2 million
in 1980, declining thereafter to 11.5 million in 1987. Since 1988, both
enrolment and number of primary schools have increased progressively to 26.3 million
and 52,815 respectively in 2003, the student teacher ratio in primary school
which stood at 35 in 1980, and rose to 44 in 1986 and declining thereafter to
36 in 1990. From there, it rose to 60 in 1995 and declining thereafter to 53 in
2003. When compared to the United Nation’s stipulated minimum of 25, it is seen that Nigeria has
not performed well. Post primary enrolment was 1.0 in 1980, and thereafter,
rose to 3.4 million in 1984. By 1989, enrolment has declined to 2.7 million,
rising afterward to 2.9 million in 1990. From 1990, post primary enrolment has
risen steadly, reaching 7.1, in 2003. The student teacher ratio increased from
28, in 1980 to 38, in 1996. In 2003, the ratio fell to 38 compared to 40
recommended by the National policy on education. The number of universities was
13, in 1980, rose to 16 and 28, in 1981 and 1987 respectively. In all, the
number of tertiary institutions increased from 104 in 1988 to 202, in 2003.
Similarly, total enrolment rose from 219, 119, in 1998 to 1,274, 772, in 2003
(CBN 2002) inspite of the expansion in the educational system, it was
accomplished by structural defects, inefficiency and ineffectiveness which
affect Nigeria’s level of human capital
development and utilization. Nigeria’s educational system tends to produce
graduates who lacks the necessary skills for employment than those that the
economy required to remain vibrant. This inadequacy of human capital resulted
in decreasing industrial capacity utilization, rising unemployment, threats of
social insecurity by jobless youths.
Other problems include; adequate
resources input and consequently low output and over dependence on government as
an employer of labour. Available statistics show that, adults literacy was
50.1, in 1989, rose to 55, in 1993 and 1994. It remained at 57 from 1995 to
2003.
On the profile of health, Nigeria
has withnessed declining health status indices. Life expectancy, for example,
decline from a value of 54 years in the early 1980 to 52 years in 1994, and
increase marginally to 53 years in 1996. the average population per physician
rose from 3707, in 1995 to 4605, in 2001. Likewise, the population of nursing staffs
to population increased from 605, in 1995 to 920, in 2001. These indicators are
well above the norm for adequacy of health personnel. It should be noted that
the number of tertiary health institutions has stagnated since 1998, this is
not just the only issue; it is also on record that, there is inadequate funding
of the existing ones which impairs their effective provision of adequate
healthcare. Thus, there may be no significant economic growth in any country
without adequate human capital development.
In the same pace, much of the
planning in Nigeria was centered on the accumulation of physical capital for
rapid growth and development, without recognition of the important role played
by human capital development. Existing studies have paid little or no attention
to human capital resource as being one of the major determinants of economic
growth.
1.3 Objectives
of the Study
The board objective of this study is to ascertain the
relative impact of human capital development on economic growth in Nigeria.
Specifically, the study is aimed at;
Ascertaining the relative impact of
education on economic growth in Nigeria, determining the relative impact of
health on economic growth in Nigeria.
1.4 Hypothesis
of the Study
This
research study will be guided by the following hypothesis.
H0: Investment in education has no significant
impact on economic growth in Nigeria
H1: Investment in education has a significant
impact on economic growth in Nigeria.
Hypothesis II
H0: Investment in health has no significant
impact on economic growth in Nigeria.
H1: Investment in health has a significant
impact on economic growth in Nigeria.
1.5 Significance of the
Study
Globally,
there is substantial empirical evidence that accumulation of human capital
development constitutes important determinant of economic growth. Hence, Romer
(1990b: 273), has a challenge for a non specialist to read event the surveys in
the area.
Secondly,
it would help to harmonize external and internal sector policies in order to
manage and develop human resources efficiently and effectively.
Thirdly,
the result obtained from this study would serve as a point of reference for
future researcher on this topic.
1.6 Scope and limitation of the Study
This research study will cover the period 1980-2010 to enable us have a
clear vision of the contribution that human capital to economic growth in
Nigeria.
This work will also focus on whether
human capital development through increased public expenditure on social sector
activities, gross fixed capital formation leads to higher economic growth.
Emphasis would be made on government expenditure on health as well as
education.
Some
factors has evidence to the progress of this work; inclusive are;
·
Data inadequacy:
the availability of the needed data for any research work is a vital tool for
the progress and easy conduct of the research work, therefore, unavailability
of some important data has limited this research work.
·
Data
inconsistency; data relating to a particular item often differ among
publications from different sources, and even among the publication from the
same source and for different years.
·
Financial
constraint; finance plays a very vital role in any research work in order to
collect enough data for the progress of the research work.
·
Time constraint:
time is another factor that has limited in this research work, and this is
because, there is a limited time for which this research work is expected to
have been concluded.
1.7 Definition of Terms
Human Capital: Human capital is the acquired capabilities which are
developed through formal and informal education at school and at home, and
through training, experience, and mobility in the labour market. Just as
accumulation of personal human capital produces individual economic (income)
growth, so do the corresponding social or national aggregates. At the national
level, human capital can be viewed as a factor of production coordinate with
physical capital. This implies that its contribution to growth is greater the
larger the volume of physical capital and vice versa. The framework of an
aggregate production function shows also that the growth of human capital is
both a condition and a consequence of economic growth. Human capital activities
involve not merely the transmission and embodiment in people of available
knowledge, but also the production of new knowledge which is the source of
innovation and of technical change which peoples all factors of production.
·
Human Capital Formation:
This refers to a conscious and continuous process of acquiring and increasing
the number of people with requisite knowledge, education, skill and experience
that are crucial for the economic and political development of a country
(Odusola, 1998; 529)
·
Gross Domestic Product
(GDP); This is the monetary value of total output of goods and service produced
within a given country in a particular period. The CBN defines GDP as the money
value of goods and services produced in an economy during a period of time
irrespective of the nationality of the people who produce the goods and
service. It is equal to the sum of the value added by each industry, net of all
inputs, including imported intermediate goods; this is equal to the factor in comes of all persons engaged
in domestic production. Gross domestic product together with net property in
come from abroad constitution gross rational product.
CHAPTER THREE
RESEARCH METHODOLOGY
In every economic research work,
researchers may like to understand how they proceed in their analysis of an
economic problem. That is, what is their methodology? Thus, these sub-headings
stated below shall guide the researcher in the major ways of analyzing the
economic problem under study.
3.1 Model
Specification
In this study, hypothesis has been stated
with the aim of examining the relative impact of human capital development on
economic growth in Nigeria. In capturing this study, the following variables
stated below will be used as proxy. Hence, the model is represented in a
functional form:
RGDP = F (GEE, GEH).............3.1
Where
RGDP = Real Gross Domestic Product
(Dependent variable)
GEE = Government Expenditure on
Education (Independent variable)
GEH = Government Expenditure on
Health (Independent variable)
In a linear function, it
is represented as follows,
RGDP = bo + b1 GEE + b2
GEH + Ut ...3.2
Where
bo = Constant term
b1 = Regression
coefficient of GEE
b2 = Regression
coefficient of GEH
Ut = Error Term
3.2 Model Estimation
As the data for the analysis is
obtained, the next task is to estimate the parameters of the function. The
numerical estimates of the parameters give the empirical content of the
function specified. Regression analysis based on the classical linear
regression model, otherwise known as Ordinary Least Square (OLS) technique is
chosen by the researcher for the analysis.
3.3 Model Evaluation
Using a time series data, the
researcher estimates the model with ordinary least square method. This method
is preferred to others as it is best linear unbiased estimator, minimum
variance, zero mean value of the random terms, etc. (koutsoyiannis 2001).
-
The tests that will be considered in this study include:
-
Coefficient of Determination (R2 )
-
Standard Error test (S.E)
-
T-test
-
F-test
-
Durbin Watson Statistics
Coefficient
of Multiple Determination (R2).
It is used to measure the proportion of variations in the dependent variable which is explained by
the explanatory variables. The higher the
value of (R2), the greater the proportion of the variation in the
independent variables.
Standard
Error test (S.E). It is
used to test for the reliability of the coefficient estimates.
Decision Rule
If S.E
< 1/2b1, reject the null hypothesis and
conclude that the coefficient estimate of
parameter is statistically significant. Otherwise accept
the null hypothesis.
T-test:
It is used to test for
the statistical significance of individual estimated parameter. In this research, T-test is
chosen because the population variance is unknown and the sample size is less than 30.
Decision
Rule
If T-cal
> T-tab, reject the null hypothesis and conclude that the regression
coefficient is
statistically
significant. Otherwise accept the null hypothesis.
F-test:
It is used to test for
the joint influence of the explanatory variables on the dependent variable.
Decision
Rule
If F-cal
> F-tab, reject the null hypothesis and conclude that the regression plane
is statistical significant.
Otherwise accept the null hypothesis.
Durbin
Watson (DW): It is used to test for the presence of
autocorrelation (serial correlation).
Decision
rule
If the
computed Durbin Watson statistics is less than the tabulated value of the lower
limit, there is
evidence of positive first order serial correlation. If it is greater than the
upper limit there is no evidence of positive
first order serial correlation. However, if it lies between the lower and upper limit, there is inconclusive evidence
regarding the presence or absence of positive
first order serial correlation,
3.4 Sources of Data
The data for this research project is
obtained from the following sources:
i. Central Bank of Nigeria
Statistical Bulletin for various years.
ji. Other CBN Periodicals-Bullion of various
years.
iii. National Bureau of
Statistics Publication-Annual Reports of various years.