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.
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.
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
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
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)
- 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.
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.
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.
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).
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.