HUMAN CAPITAL DEVELOPMENT AND ECONOMIC GROWTH IN NIGERIA (1980-2010)

ABSTRACT

This study shows the relevance of human capital development to the growth of the economy. It evaluates human capital development and economic growth in Nigeria by adopting conceptual analytical framework that employs the theoretical and ordinary least square (OLS) to analyze the relationship using the GDP as proxy for economic growth; total government expenditure on education and health, and the enrolment pattern of tertiary, secondary and primary schools as proxy for human capital. The analysis confirms that there is strong positive relationship between human capital development and economic growth. Following the findings, it was recommended that stakeholders need to evolve a more pragmatic means of developing the human capabilities, since it is seen as an important tool for economic growth in Nigeria. Also proper institutional framework should be put in place to look into the manpower needs of the various sectors and implement policies that will lead to the overall growth of the economy.

TABLE OF CONTENTS

TITLE                                                                                                 PAGES

Certification                                                                                                ii

Dedication                                                                                                  iii

Acknowledgement                                                                                                iv

Abstract                                                                                                      v

Table of Contents                                                                                                 vi                                                      

CHAPTER ONE: INTRODUCTION

1.1     Background of the Study                                                                            1

1.2     Statement of the Problem                                                                  3

1.3     Objectives of the Study                                                                     4       

1.4      Research Question/ Hypothesis                                                                5

1.5      Justification / Significance of the Study                                           6

1.6     Organization of the Study                                                                 6

CHAPTER TWO: LITERATURE REVIEW

2.1        Theoretical Review                                                                        8

2.2         Review of Current Literature                                                                 11

2.2.1     Means of Human Capital Formation                                                      15

2.2.2    Human Capital Development Strategies in Nigeria: A Review                18

2.3        Methodological Review                                                                 24

CHAPTER THREE: RESEARCH METHODOLOGY

3.1       Theoretical framework and methodology                                       26

3.2        Methodology                                                                                 29

3.3        Source of data                                                                               29

3.4       Model Specification                                                                        29

3.5     Estimation Techniques                                                                      31

35      Concept of Error Correction Mechanism                                         32

CHAPTER FOUR: EMPIRICAL ANALYSIS

4.1     Description of Data                                                                          35

4.2    Unit Root Test                                                                                  38

4.3     Co-integration Test                                                                           39

4.4     Discussion of Findings                                                                      43

CHAPTER FIVE:  SUMMARY, CONCLUSION AND RECOMMENDATION

5.1     Summary:                                                                                         46

5.2     Conclusion:                                                                                                47

5.3     Recommendations:                                                                            47

REFERENCES                                                                                49

          APPENDIX                                                                                      53

List of Tables/ Figures

1.                 Educational development in Nigeria (1980-2000)                        19

2.                 Comparing the school enrolment levels with Nigeria population          21

3.                 Descriptive Statistics                                                                             35

4.                 Unit root test at a level                                                                 37

5.                 Unit root test at first difference                                                    37

6.                 Johansen Co-Integration test                                                                39

7.                 Static regression analysis                                                             41

List of figure

1       Cumulative Sum of Square at 5 percent significance test of stability         36

CHAPTER ONE

INTRODUCTION

1.1     Background of the Study

The concept of human capital according to Woodhall (2003), refers to the fact that human beings invest in themselves, by means of education, training, or other activities, which raises their future income by increasing their lifetime earnings. Economists use the term “investment” to refer to expenditure on assets which will produce income in the future, and contrast investment expenditure with consumption, which produces immediate satisfaction or benefits, but does not create future income. Assets which will generate income in the future are called capital. Traditionally, economic analysis of the investment and capital tended to concentrate on physical capital, namely machinery, equipment, or buildings, which would generate income in the future by creating productive capacity. However, a number of classical economists, notably, Adam Smith pointed out that education helped to increase the productive capacity of workers, in the same way as the purchase of new machinery, or other forms of physical capital, increased the productive capacity of a factory or other enterprise. Thus, an analogy was drawn between investment in physical capital and investment in human capital.

It is worthy to note that since the time of Theodore Schultz (1960s) the concept of human capital has dominated the economics of education and has had a powerful influence on the analysis of the labour market, wage determination, and other branches of economics, such as the analysis of economic growth as well as expenditure on health care and the study of migration. For it is recognized that these also represent investment in human capital since they can help to determine the earning capacity of individuals, and therefore increase their lifetime incomes. In light of above, human capital is seen as an important factor used in converting all resources to mankind’s use and benefit. Economists observed that the development and utilization of human capital is important in a nation’s economic growth. In any case, no country can achieve sustained economic development without substantial investment in human capital.

Arguably, several studies have evolved to analyse the channels through which human capital can affect growth. As pointed out in the existing literature a complementary relationship exists between human capital, and economic growth. More research studies are needed because of the challenges of Nigeria’s development.

Most arguably, much of the planning in Nigeria had been centered on the accumulation of physical capital for rapid growth and development, without due attention to the important role played by human capital in the development process. It is equally important to note that Nigeria as a country is immensely endowed both in natural and human resources. The pool of resources from one end to the other is unquantifiable to such extent that, given a dynamic leadership, economic prosperity would have been achieved in late 20th century. In spite of all these abundant resources, Nigeria has failed to realize her full development potential with the topmost priority currently given to sustainable human capital development or people oriented development by many countries and multilateral organizations, e.g. UNDP. It is against this background that this study seeks to examine the relationship between human capital development and economic growth in Nigeria from 1980-2012 where data are available.

1.2     Statement of the Problem

The high rate of illiteracy in Nigeria has brought about sizable number of workers to be unskilled, making them to use outmoded capital, equipment and methods of production (Adelakun, 2011). As a result, their marginal productivity is extremely low and this leads to low real income low savings, low investment and consequently low rate of capital formation. It was indicated on the Human Development Index (2010) document that adult literacy rate of at least 65% would be attained by 2015. 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. Given this situation this study assesses the relationship between human capital development and economic development for the periods 1980-2010.

1.3     Objectives of the Study:

The general objective of this present research study is to examine the relationship between human capital development and economic growth in Nigeria from 1980-2012. However, the specific objectives are to:

1.     Examine the causal relationship between human capital development and economic growth.

2.     Assess the rate of human capital formation in Nigeria.

3.     Examine the distribution of skilled manpower and employment of human capital in Nigeria.

4.      Examine the relative size and trends of human capital development in Nigeria.

1.4         Research Question/ Hypothesis

1.                 To what extent are the economy and human capital development positively related particularly in the context of a developing economy such as Nigeria?

2.                 What is the rate of human capital formation in Nigeria?

3.                 What is the distribution of skilled manpower? Are human capital misemployed in Nigeria.

4.                 What is the relative size and trend of human capital development in Nigeria?

The null hypothesis that this proposed research study empirically tests is that human capital development does not have significant impact on economic growth in Nigeria.

1.5        Justification / Significance of the Study

This present study has implication for improving and increasing the quality and quantity of manpower requirements in the country towards meeting with the challenges of growth and development. The study has identified human capital as important factor used in converting all resources to people’s use and benefit and hence documents the present investment in human capital development in Nigeria’s economic growth. This study is relevant in a true sense that it will help in finding way to accelerate the growth rate of national income. The study will therefore be resourceful to government and policy makers in formulating policy, directives and regulations for human capital development to facilitate economic growth in Nigeria.

1.6     Organization of the Study

This present research study has been divided into five sections; section one comprises of  the introduction consisting the background of the study, statement of the problem, objectives of the study, research questions hypothesis, justification / significance of the study and organization of the study. Section two covers the literature review with theoretical review, review of current literature methodological review while section three majors in the research methodology covering theoretical framework, methodology, research design, model specification, estimation technique and sources of data; section four is data presentation and analysis  focusing on discussion of results/ findings. Section five then covers the summary of findings, conclusion, and policy recommendations.