ABSTRACT
A nation can not
experience economic growth with out human capital. And for human capital to
actually have any impact on economic growth some investments have to be made.
Investment in human capital consists of; investment in education, training,
health and other social services that will help in enhancing the productive
capacity of labour. This project examines the impact of human of capital on
economic growth in Nigeria from 1977-2004. The study used the ordinary least
square technique (OLS) to determine the relationship between human capital and
economic growth. The research result shows that foreign direct investment does
not have much impact on economic growth while human capital which was proxied
by total government expenditure, labour and gross capital formation, has an
impact on economic growth.
Comparing Nigeria
to most countries we can see that the rate of investment in human capital is
low. Therefore in order to increase its formation and thereby accelerate
economic growth, much attention should be paid to expenditure on education,
health and other socio-economic infrastructure that will enhance the
productivity of labour. Attempts should be made t restructure the educational
system too meet the challenges of the society. The government should furthermore
try to ensure a stable macroeconomic environment that will encourage increased
investment in human capital by private bodies, religious organization and
individuals.
TABLE OF CONTENTS
Dedication
Acknowledgement
Abstract
Chapter 1:
Introduction
1.1 Background of the study 1
1.2 Statement of the Problem 5
1.3 Objective of Study 6
1.4
Significance of Study 7
1.5 Research questions 7
1.6 Research Hypothesis 7
1.7 Research Methodology 7
1.8 Sources of data 8
1.9 Scope of study 8
1.10 Outline of chapters 8
Chapter 2:
Literature Review
2.0 Concept of Human Capital 10
2.1 Empirical Investigations on the Works
of Human Capital 17
2.2 Education in Nigeria 21
Chapter 3:
Research Methodology
3.1 Introduction 26
3.2 Nature of Research Method 26
3.3 Research Design 32
- Model
specification
- Data Sources
- Research
Instruments
3.4 Method of Data Presentation and
Analysis 34
Chapter 4: Data
Analysis and Interpretation
4.1 Introduction 36
4.2 Presentation of Data 36
4.3 Data Analysis and Results 37
4.4 Testing of Hypothesis and Discussion of
Results 40
Chapter 5:
Summary and Conclusion
5.1
Summary of work 43
5.2 Findings (i) Theoretical Findings 43
(ii) Empirical findings
5.3 Recommendations 44
5.4 Conclusion 44
- Limitation of
studies
- Suggestions
for further studies.
APPENDICES:
Bibliography 46
Table 1
Table 2
Correlation
Matrix Test.
Data
Chapter One
1.1
BACKGROUD TO THE STUDY
The concept of
human capital is a relatively recent idea in the realm of economic theory.
While economists have long paid close attention to the concept of investments
in physical capital in recent years they have placed emphasis on the concept of
human capital investments. Largely, this shift occurred as a result of the
failure of classical economist’s theory to explain the dominance of developed
countries over undeveloped ones in the international market. Human capital
covers a broad range of concepts but the most essential feature is increased
productivity through investing in employees, it can mean education acquired
from elementary school level, training of basic reading and writing skills, to
job training, both of general and
specific skills.
The use of the
term human capital in the modern neoclassical economic literature dates back to
Jacob Mincer pioneering article “Investment in Human Capital and Personal
income distribution” in the Journal of Political Economy in 1958. And the best
known application of the idea of ‘Human Capital’ in economics revolves around
the work of Mincer, Schultz and Gary Becker of the Chicago school. Becker’s
book entitled Human Capital published in 1964 became a standard reference for
many years. According to Gary Becker; Human Capital is similar to “physical
means of production”( example factories and machineries) one can invest in human capital (via education,
training and medical treatment) and one’s income depends partly on the rate of
return on the human capital one owns, which allows one to receive a flow of
income which is like interest earned. Human capital is substitutable though it
will not replace land, labor or capital it can be substituted for them to various
degrees and be included as a separate variable in a production function.
Human capital can also be defined as a way of
defining and categorizing people’s skills and abilities as used in employment
and otherwise contribute to the economy. It is also used to refer to the skills
and knowledge intensity of the labor force in an economy which are essentially
acquired through schooling and training.
The organization
and economic co-operation and development define human capital as “The
knowledge, skills competences and attributes embodied in individuals that are
relevant to economic activity” (Schuller 2001) while duration of schooling and
levels of qualification are the standard measures.
Laroche et al (1999) further extend this
notion to include “innate abilities”. Innate abilities are;
- They are not part of the physical
body and there is therefore no chance of double counting.
- They can not be separated from such
things in human capital such as experience.
Nakamura (1981)
also defines human capital broadly as labor skills, managerial skills and
entrepreneurial and innovative abilities plus such physical attributes as
health and strength.
Newland and San
Segundo (1996) see human capital as that ability and education of an individual
and on the other hand as the costs of physically raising a child and health.
Human capital
refers to a conscious and continuous process of acquiring requisite knowledge,
education, skills and experiences that are crucial for the rapid economic
growth of a country (Harbison 1973, Salleh 1992). It involves investment in
education, training and other social services like transport facilities and
housing. Underdeveloped countries are faced with two diverse manpower problem;
they lack the critical skills needed for the industrial sector and have a
surplus labor force. The existence of surplus labor is to a considerable extent
due to the shortage of critical skills and these problems are interrelated.
The need for investment in human capital formation
in such economies is more obvious from the fact that despite the massive
imports of physical capital they have not been able to accelerate their growth
rate because of the existence of undeveloped human resources although growth of
course is possible from the increase in the conventional capital even though
the available labor force is lacking in skills and knowledge growth rate will
be seriously limited without the latter. Human capital is then needed to staff
and expand government services to introduce new system of land use and new
methods of agriculture, it develops new means of communication to carry forward
industrialization and to build the educational system.
People are the
most important asset a nation can have and there can not be any form of
economic development if the people don’t develop themselves.
When
we talk about human capital the capital being referred is the one embodied in
human beings that yield income and other useful outputs over long period of
time it could be schooling, a computer training course, expenditure of medical
care and lectures on the virtues of punctuality and honesty are also capital.
This is because it raises earnings, improve health, or add to a person’s good
habit over much of his lifetime.
The expenditures
on education, medical care and so on are called investments in human capital;
they are called human capital because people cannot be separated from their
knowledge, skills health or values in the way that they can be separated from
their financial and physical effect (Gary Becker 1964).
We can therefore
say that it is those innate abilities and various skills acquired by a person
that makes up his capital. Due to this factor there can be no significant
economic growth in any economy without adequate human and natural resources.
The stock of human capital like the stock of natural and physical capital will
deteriorate and decay if not increased and maintained through improvements in
public health and sanitation, social welfare services, good nutrition and guaranteed
employment schemes. The human capital formation indices should be integrated
into the planning process in order to achieve a sustainable growth and
development.
The importance of
human capital formation can be seen in the Khartoum declaration of 1998 which
asserted that,
...T he human
dimension is the sine qua non of economic recovery … No SAP or economic
recovery programme should be formulated or can be formulated or can be
implemented without having at its heart detailed social and human priorities.
There can be no real structural adjustment or economic recovery in the absence
of the human imperative (Adedeji et al 1990).
Yesufu (2000) as
cited in ‘Impact of Human Capital on Economic Growth in Nigeria: An error
correction approach opines that “The essence of human resources development
becomes one of ensuring that the work force is continuously adapted for and
upgraded to meet the new challenges of its total environment”.
This is because
the economy is a dynamic entity, which is constantly changing in response to
various stimuli such as introduction and discovery of new techniques of
production.
Okojie (1995) as
cited in ‘the impact of human capital on economic growth in Nigeria: an error
correction approach concludes that human capital formation “is thus associated
with investment in man and his development as a creative and productive person
“. The totality of the effort and cost involved in this massive upgrading of
the productive capacity of the people constitutes investments in human
resources, which is also referred to as manpower development or human resources
development. Human capital can be
acquired and developed in different ways namely; education, training, health
promotion, as well investment in all social services that influences mans productive
capacities including, telecommunications transport and housing. In the words of
Yesufu (2000) as cited in ‘the impact of human capital on economic growth in
Nigeria: an error correction approach “education and training are generally
indicated as the most important direct means of upgrading the human intellect
and skills for productive employment”.
However human capital formation transcends
mere acquisition of intellectual ability through formal education system to
include the family, the educational system ,formal or informal institutions,
special professional and training organizations; enterprise in- house
arrangements, and even individual self efforts.
For a nation to be
termed or described as developed it must have the following characteristics and
according to (Todaro2003) these are;
- To raise levels of living including,
in addition to higher incomes, the provision of more jobs, better
education and greater attention to cultural and human values all of which
will serve as not only to enhance material well being but also to generate
greater individual and natural self esteem.
- To increase the availability and
widen the distribution of basic life sustaining goals such as food,
shelter, health and protection.
- To expand the range of economic and
societal choices available to individuals and nations by freeing them from
servitude and dependence not only in relation to other people and nation
states but also to the forces of ignorance and human misery.
If these three
objectives are anything to go by then we can rightly say that Nigeria is still
underdeveloped and exhibiting the characteristics of a low -income developing
country this includes low levels of living, low per-capita national income,
income inequality, poverty etc.
Nigeria can be
categorized as a country that is primarily rural, depends on primary product,
exports, has high population growth, suffers from widespread poverty and rising
unemployment and must deal with tribal and ethnic conflicts. Since the advent
of Nigeria’s independence in 1960 it has experienced ethnic, regional and
religious tensions, magnified by the significant disparities in economic and
educational development between the south and the north.
Nigeria’s social
indicators placed it among the poorest in South Saharan Africa with a human development index of 0.401 was
ranked 137th among 174 developing countries considered in
1993(Odusola 1998). Infant mortality rate was about 144 per 1000 live births in
1981 (Odusola 1998).
The performance of the economy has not been
satisfactory, from 1980s using conventional indices. The periods 1960-65,
1970-75, 1976-80, 1981-85 and 1986-92 are very significant and they represent
important episodes in the economy. The 1960-65 period attempts to capture both
the independence and the commodity export boom at that time. The period 1970-75
reflects the era of oil windfall while 1976-80 period incorporates part of the
oil boom and austerity measures and various stabilization packages finally, the
period represents the structural adjustment years.
The oil boom and
the consequent neglect of agriculture in the 1970s and early 1980s caused a
massive movement of people from rural to urban centers. Moreover regional and
income disparities are among the worst in the world (Todaro 2003).
For Nigeria to
turn the tides of its economic misfortune and mismanagement, which includes a
high rate of unemployment, poverty, illiteracy and so on, it will have to take
steps to raise domestic food production and labor productivity; use oil
revenues more rationally to diversify economic activity and reduce the burden
of its’ foreign debt; lower population growth through a combination of
effective family planning programme
Improved rural
health and education and a reduction in absolute poverty: seek increased
foreign aid and investment, including significant debt relief (which was
achieved recently): make greater use of market price incentives to allocate
resources while endeavoring to improve public and private decision making and
maintain political stability between rural ethnic and religious groups
(Todaro2003).
All these can
rightly be achieved through human means and therefore the role of human capital
to economic growth cannot be overemphasized and the development of human
capital has bee recognized to be an important prerequisite and an invaluable
asset for a country’s socio-economic and political transformation. Over the
years, with the large population, Nigeria has not been able to do much in terms
of economic development and poor leadership was blamed for the nation’s
underdevelopment. This brings about the question; does the large human resource
available not able to affect economic growth? The answer to this question is
clear in the sense that most countries which are less populated then Nigeria has
done relatively well in economic good. Taking the case of Japan for example, it
was a highly populated country that was able to harness its large human
resource and transform the country into a developed one. In the view of the
fact that populated countries can still achieve economic growth, this study is
embarked upon to assess the impact of human capital on economic growth in
Nigeria.
1.2 STATEMENT OF THE PROBLEM
“There can be no
significant economic growth in any country without adequate human capital
development. In the past, 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 in the development
process”. This view was expressed by Ogujiuba and Adeniji (2003) in their paper
economic growth and human capital development: the case of the Nigerian. They
are of the view that people are a country’s most valuable assets. Going by this
view, investment in human capital in terms of education, on-the –job training
and health will surely raise productivity in Nigeria. Much is still to be
desired in educational and health sector of the economy as we have seen that
investment in human capital was the triggering factor that led to the economic
growth in other developed countries. In the light of this, the following
questions and more will need to be answered in order for human capital to take
its place in the growth process and planning horizon of Nigeria these questions
include:
1.
How strong and significant will
an increase in investment in education have on the economy.
2. Does education and health have any link in the increase in
productivity?
1.3 OBJECTIVES OF THE STUDY
This study is aimed at examining empirically the effect of human
capital on economic growth and the objectives of the study include;
1.
To ascertain the impact of
education on economic growth in Nigeria.
2.
Does openness to trade and
human capital promote faster economic growth?
3.
To make policy
recommendations based on the findings of the research.
1.4 SIGNIFICANCE OF STUDY
The significance of this study on the impact of human capital on
economic cannot be over emphasized as the result will help in policy making.
The study is to help come to a solution on how to accelerate economic growth.
RESEARCH QUESTIONS
The questions this
research tends to answer includes amongst others the following;
- Does education have any impact on
economic growth?
- Does the labour force available in a
country have any impact on economic growth?
- Does domestic capital have any
effect on economic growth?
1.6 RESEARCH
HYPOTHESIS
Based on the research work being carried out; the hypothesis is
stated below;
H0: does education have any impact on economic growth.
H1: education has no impact on economic growth
1.7 RESEARCH METHODOLOGY
The technique of
estimation to be used to determine the impact of human capital on economic will
be the ordinary least square technique. The model to be used will be expressed
in cobb-douglas production function and the variables in the model will be
logged.
1.8 SOURCES OF DATA
For the purpose of
this project, data will be sourced from the central bank statistical bulletin
for the various years and the data are all secondary data.
1.9 SCOPE OF
THE STUDY
There are various
investments that can be made in order to contribute to the formulation of human
capital. But investment in education has been chosen. The scope of the study
will cover the year 1977-2004 and it will be restricted to the Nigerian
economy.
1.10 OUTLINE OF CHAPTERS
This project is
divided into five chapters, after the introductory chapter, chapter two reviews
some relevant literature on human capital and economic growth. Chapter three,
deals with the theoretical framework and methodology. Chapter four will deal
with the analysis of the regression result and finally chapter five will
summarize, recommend and conclude the study.
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