THE IMPACT OF HUMAN CAPITAL ON THE NIGERIA ECONOMIC GROWTH (1980-2013)

THE IMPACT OF HUMAN CAPITAL ON THE NIGERIA ECONOMIC GROWTH (1980-2013)
TABLE OF CONTENTS
Cover Page                                                                                                                
Title page                                                                                                                   
Approval Page                                                                                                            
Certification                                                                                                            
Dedication                                                                                                               
 Acknowledgements                                                                                                 
Table of contents                                                                                                  
Abstract                                                                                                                        CHAPTER ONE: INTRODUCTION
1.1 Background to the study                                                                               Statement of the Problem                                                                             
1.3
Research questions                                                                    
1.4 Objective of the Study                                                                                 
1.5 Research Hypothesis                                                                                       
1.6 Significance
of the Study                                                                               
1.7 Scope of the Study                                                                                        
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction                                                                                   
2.2.1 Conceptual Review                                                                                          14
2.2.2
Roles of Human Capital Development in Economic Growth
             in Nigeria                                                                                                       
2.2.3 Human capital development in Nigeria                                        
2.2.4 Human Capital
and Economic Growth in Nigeria                            
2.2.5 Health and education as components of human capital             
2.2.6 Education policies in Nigeria                                                                     
2.2.7 Problems of Human Capital Investment in Nigeria                                
2.3 Theoretical Review                                                                                           
2.3.1 Growth Processes and Economic
Theory                               
2.3.2
Human Capital Theory                                                                                
2.3.3 The Modernization Theory                                                                        
2.3.4 The dependence theory                                                                           
2.3.5 Panel Data and
Growth Processes                                             
2.4 Empirical
Studies                                                                                              
2.5
Summary                                                                                                            
CHAPTER THREE: METHODOLOGY
3.1Introduction                                                                                                                 
Model specification                                                                                                    
Identification of variables                                                                                         
A priori
Expectation                                                                                                  
Estimation
Techniques                                                                                             
Sources of Data                                                                                                         
CHAPTER FOUR: RESULTS AND DISCUSSION
Introduction                                                               
Presentation of Results                                                                                             
Interpretation of result                                                                                           
Discussion of findings                                                                                             
CHAPTER
FIVE:
SUMMARY, CONCLUSION AND
RECOMMENDATIONS
Summary                                                                                                                      Conclusion                                                                                                                     Recommendations                                                                                                     
Reference
                                                                                                        
Appendix                                                                                                                              ABSTRACT

This research
work focus on human capital and Nigeria economic growth. The general aim of the
work was to examine the relative impact of human capital on the Nigeria
Economic growth. Secondary data was used for the study and the multiple
regression analysis techniques was used for the analysis. The finding from the
study showed that there is a strong relationship between human capital and
Nigeria economic growth. Also high level of human capital has increased the
utilization of resource both human and material .Therefore, economic growth is
proxied by Gross Domestic Product while human capital is proxied by investment
in education and health sector. This study recommends that in order to
accelerate growth and liberate Nigeria from the vicious cycle of poverty, the
government should put in place policies geared towards massive investment in
the education and health which are accepted as major component of human
capital.
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                                            CHAPTER
ONE
INTRODUCTION
1.1     Background to the Study
Many scholars argue that human and physical capitals
are significantly related. Nelson and Phelps (1966) claim that better educated
people are more likely to innovate and assimilate new technology than poorly
educated ones. Fishlow (1966) argues that high education levels in the 1900s
helped to speed the accumulation of physical capital and the creation of new
technology in the US.
More recently, Romer (1993) formalizes the argument that a more educated
populace is better able to integrate new technologies. Caballe and Santos (1993) and Graca,
Saqib, and Philippopoulos (1995) demonstrate that an increase in the stock of
physical capital should have a positive effect on the accumulation of human
capital. In Lucas (1993) and Greiner (1999), any increase in physical capital
must be matched by increases in human capital in order to sustain per-capita
income growth. Upadhyay (1994), while recognizing the possibility that new
technology may destroy existing human capital, constructs a model where
innovation increases the derived demand for new types of human capital.
Empirical work on the joint endogeneity of human and physical capital is
considerably less extensive. In a cross-country regression of 78 countries,
Benhabib and Spiegel (1997) find support for the Nelson and Phelps hypothesis
that more educated countries grow faster. They show that increases in human
capital bring about significantly higher growth in the stock of physical
capital. To date, Grier (2002) is the only paper to empirically study the
simultaneous determination of human and physical capital. In a panel of 21
Latin American countries from 1965–1990, Grier finds that the two types of
capital are indeed jointly endogenous.
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 (Ferid and Zefer,
2013). 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. Prior to the Second World War
(1939-1945), academic discourse on the relationship between education and
economy was insignificant. However, later studies by Schultz (1961), Denison (1962) and a host
other economists confirmed that the economy depended on education to foster
economic growth.
In political terms, investment in
human capital prepares people for participation in the political processes,
particularly as citizens in a democratic society. From the social, economic and
cultural points of view, human capital investment helps to lead fuller and
richer lives, less bound by tradition. It is a way to empower people, this in
turn will help them contribute substantially to the growth process in the
economy.  Human capital investment is
crucial in the growth process of the Nigerian economy. Vision 20:2020 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.
Health and education are two closely
related human capital components that work together to make the individual more
productive. One component cannot be considered important than the other
(Lawanson, 2009). Health connotes the ability to lead a socially and
economically productive life (Anyawu et.al, 1997). A healthy populace will be
highly productive and the educated have the tendency to apply a degree of
sophistication in the production process.
Similarly,
health is fundamental to economic growth and development and is one of the key
determinants of economic performance both at the micro and macro levels. This
derives from the fact that health is both a direct component of human
well-being and a form of human capital that increases individual’s capabilities
(Bloom and Canning, 2003). Grossman (1972) has equally demonstrated that health
is a form of human capital. Schultz (1992) argued that population quality is
the decisive factor of production and emphasized the merits of investing in
education and health. Meeting the commendable United Nation health Millennium
Development Goals (MDGs) of a reduction by two-thirds in the under-5 mortality
ratio and a reduction by three-quarters in maternal mortality, and halting and
beginning to reverse the spread of HIV/AIDS, malaria and other major diseases
by 2015 will be completely elusive for Sub-Sahara African countries like
Nigeria if sufficient attention is not paid to health expenditures. Similarly,
eradicating illiteracy as one of the objectives of the (MDGs) will be a mirage
if adequate attention is not given to educational expenditure by the federal
government. It is against this backdrop that this paper examines the
correlation between Expenditures on Education and Health Services, and Economic
Growth in Nigeria.
Among other objectives, the paper focuses on public expenditures on the
education and health sectors during the period under review with a view to
ascertaining the relative commitments of the governments to these sectors. In
addition, the study empirically identified the various outcomes from
expenditures on education and health services and their correlation with
economic growth.
1.2 Statement of the Problem
According to Harbison and Myers (1964),
Human resource development is one of the necessary conditions for all kinds of
growth: social, political, cultural, or economic. The concept that investment
in human capital promotes economic growth actually dates back to the time of
Adam Smith (1776) and the early classical economists who emphasized the
importance of investing in human capital. Sustained economic growth accompanied
with social development is one of the notable macroeconomic objectives of every
country and in this regard human capital is deemed as an essential ingredient.
Therefore, human capital has gained
significant importance in growth theories. However, its measurement is not
addressed properly in economic literature. Various researchers have utilized
different proxies for human capital, for instance Mankiew et al. (1992) utilize
secondary education enrollments. Barro and Lee (1993) and Bosworth et al.
(1995) have used average years of schooling. The existing literature on human
capital reveals that while acknowledging the role of human capital in economic
growth macroeconomists express human capital solely in the form of education
whereas micro economists consider health as another important component of
human capital beside education. Micro economists believe that health plays
significant role in the formation of human capital because in order to ensure
growth in productivity, people need to be healthy or protected from sickness.
It means health and education both are primary ingredients of human capital
formation.
However human capital theory as well as
endogenous growth theory suggests that there are substantial economic effects
of education on the micro and macroeconomic level. The interrelationship
between education and economic growth has been the subject of debates, enjoying
a wide interest since the era of Plato. According to Dikens et al. (2006), Zoega
(2003) and Barro (1991), education has a high intrinsic economic value since
the investments in education led to the formation of human capital, which is
one of the causes of economic growth.
According to Stevens and Weale (2003),
life quality has substantially increased in the last millennium in most
countries of the world, and particularly in European countries, the development
of educational field has been contributing to it.
One of the main motivations for studying education from economic
point of view is its impact on reducing income inequalities (Ram, 1990), and
the relationship between education and labor market (Benito and Oswald, 2000).
In Nigeria,
the rate of illiteracy is very high. Most of the workers are unskilled and they
make use of outmoded capital, equipment and methods of production. By
implication, their marginal productivity is extremely low and this leads to low
real income low savings, low investment and consequently low rate of capital
formation while low capital formation affect economic growth. It was indicated
that adult literacy rate of at least 65% would be attained by 2008. Therefore
the strategy aimed at empowering the citizenry to acquire the skills and
knowledge that would prepare them for the vast challenges. 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
1.3     Research
questions
The
following are the research question which the study tries to provide answer to.
1.       Does
human capital have possible impact on Nigeria economic growth?
2.       Does
school enrolment have impact on Nigeria
economic growth?
3.       What
is the impact of Government Education expenditure on Nigeria economic growth?
4.       Does
health expenditure have significant impact on Nigeria economy?
1.4     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. However, the specific
objectives are as follow:
1.     To
examine the impact of human capital on Nigeria Economic growth.
2.     To examine the impact of school
enrolment on Nigeria
economic growth.
3.     To determine the impact of
government education expenditure on economic growth.
4.     To examine the impact of health
expenditure on economic growth.
1.5     Research Hypotheses
Becker (1962), who believes that human capital is just like
physical capital and one, can invest in it by means of education, health and
training which, in turn, will raise output and contribute to economic growth.
Proponents of endogenous growth theory lay emphasis on human capital formation
and regard it a factor which explains difference in growth performance of under
developed and developed nations (Rebelo, 1991). In the empirical findings of
this study possible relationships between human capital and economic growth
are:
i.                  
Human capital does not have
significant impact on Nigeria
economic growth.
ii.                
School enrolment does not have
significant impact on Nigeria
economic growth.
iii.             
Education expenditure does not have
significant impact on Nigeria
economic growth.
iv.             
Health expenditure does not have
significant impact on Nigeria
economic growth.
1.6     Significance of the Study
The study of this nature is prompted by the slow
rate of Nigeria’s
economic growth despite the huge contribution of the government. Researches on
this topic being carried out over the years have not really achieved its prior
objective. The effect of human capital development on economic growth holds a
lot of benefits to our overall economic progress. The government and its
agencies will find this work resourceful in formatting policy, directives and
regulations for human capital development and physical capital development to
aid economic growth.
1.7     Scope
of the Study
The study examines the impact of human capital
formation and economic growth in Nigeria between 1980 to 2013. Even
though human capital formation includes education, training, health, social
capital and more. The study confines itself by considering health index and
education index as proxy for human capital development.

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