HUMAN CAPITAL DEVELOPMENT AND ECONOMIC GROWTH: A CASE STUDY OF NIGERIA (1981-2020)

HUMAN CAPITAL DEVELOPMENT AND ECONOMIC GROWTH: A CASE STUDY OF NIGERIA (1981-2020)

ABSTRACT

This research work examined how human capital development is related to economic growth in Nigeria from 1981 to 2020. The study used secondary annual data on Government Expenditure on Education (GEE), Government Expenditure on Health and Per Capita Income as proxies for human capital development, while Gross Domestic Product (GDP) as proxy for economic growth. These data adopted were sourced from the Central Bank of Nigeria statistical bulletin 2020. Cointegration test, regression analysis and ADF unit root techniques were used as well as Granger causality test to determine the causal relationship between human capital formation and economic growth. The period of analysis covered forty (40) years (1981-2020). From the analysis, it was revealed that there is positive long run relationship between human capital variables and economic growth in Nigeria and so therefore, investment in human capital is a necessity for economic growth of Nigeria. The study recommends that federal government should increase its allocations to the education sector as the effect of education appeared to be the largest. It also recommended that policy makers should enhance access to quality health care with view of that being a major driver of human capital development in Nigeria.

 

CHAPTER ONE INTRODUCTION

 

1.1  Background of the Study

The term human capital development refers to national effort to stimulate and invest in the economic value of labor to increase productivity of a nation. It is the acquired and useful abilities of all the inhabitants and members of a society (Smith, 1776). Among the generally approved factors of production responsible for good performance of most developed and newly developed countries is the commitment of human capital formation (Adedeji and Bamidele, 2003). Human capital development as an influence to the growth of an economy has been argued by macroeconomic policy makers, scholars and theorists for years now, several studies have identified human capital development as a key determinant of sustainable socio-economic growth of a country. The effect of human capital development on economic growth was outlined in the growth theory (Romer, 1986). Harbinso (1973) outlined the significance of human capital to development, he also stated that ‘’human resources accounts as the basis for the wealth of nations. Clearly a nation which cannot develop the skills and education of its people and use them effectively will not be able to develop anything else’’

Nigeria is a very populous country, therefore, it is endowed with human resources that can be utilized properly through the promotions of skills, education, well-being and experience to increase aggregate production. It is important that human capital receives direct attention even in an economy rapidly growing (Todaro and smith, 2003).  Looking at the per capita income and development level of human capital, Nigeria is classified as a less developed country, the major ways of improving human resource in such economy can be done through investing in educational and healthcare sector. Health and education are considered the best inputs for national development because education expands the abilities and productivity of individuals while health expands the wealth of a nation, this is because well-being increases human capabilities and brings about an efficient workforce that can contribute to a nation’s GDP. Schultz and Becker (1961) specified that training and education were investments that could add productivity in the 1960s. Taking one element as more important than the other is wrong and unrealistic as an illiterate but healthy individual is as inefficient as an educated but unhealthy one.

Nigeria has primarily focused on how to accelerate the growth of national income and achieve structural transformation to break the cycle of low productivity. In spite of all ample resources, Nigeria fails to reach its development potentials of which can happen when the people-oriented development strategy is prioritized because the empowerment of Nigerians really matters when trying to enhance economic growth of the nation. Of all the factors used in production, only humans can learn, adapt, create and are innovative (Eigbiremolen, 2014). Human capital formation is the continuous and deliberate process to acquire knowledge, experiences and skills that are applied to produce economic value for driving national development (Harbison, 1973). The importance of human capital development in Nigeria has been broadly recognized in several studies, Ogunniyi (2018) analyzed the impact of human capital formation on economic growth in Nigeria, the results indicates that there is a long run dynamic relationship and recommends human capital development as a tool for achieving economic progress in Nigeria. Many reports prove positive relationship between human capital and economic progress while others find no correlation or even a negative relationship, these are presented extensively in the next chapter.

Furthermore, it has been emphasized that the change in the level of economic growth among countries is credited not so much to natural resources or physical capital but to the quality of human resources (Dauda, 2010), they are more importantly the ends that must be obeyed to attain good outcome in an economy. Human beings are active agents of economic transformation, for they alone build organizations, accumulate capital and exploit natural resources while capital resources and natural resources do not take actions because they are passive agents. In addition, the prosperity of Nigeria rest ultimately on the advancement of Nigerians and their abilities, this is why the influence of human capital development on the growth of an economy cannot be

overstated.

 

1.2 Statement of the Problem

In Nigeria, the challenge of human capital development is enormous, every good policy implemented collapse due to inadequate budgetary allocation to the vital sectors and these issue remains unchanged even in the present times. Human capital development continues to suffer low budgetary allocation every year and the rate of illiteracy in Nigeria is very high, most individuals are unskilled or use the outdated methods of production which reflects to marginal productivity being low. The following are some of the major issues hindering the formation of human capital that still remains unsolved in Nigeria; a poor reward system for acquisition of human capital, misemployment of human capital  and uneven distribution of skilled manpower (Adelakun, 2011).  In a report released by the UNDP (United National Development Programme), Nigeria ranked at 158 out of 189 countries in 2020 human development index, which puts the nation in the low human development category.

Nigeria has one of the lowest government expenditure on education in the world, poor financing and insufficient funding of education are one of the core reasons why Nigeria is lagging behind in human capital development. In 2021, 6.3% of its national budget was allocated to the education, this is too low for a country with about 10.5 million out-of-school children. The educational sector has suffered inadequate funding as again the amount allocated to the sector is lower than the benchmark advocated by UNESCO (United Nations Educational, Scientific and Cultural

Organisation) that all member countries should at least allocate 26% of every year’s budget to education alone. Approximately 20,000 Nigerian doctors are participating in foreign countries whereas the scarce of practitioners in Nigeria’s healthcare system and the huge gap between professionals trained and those practicing. Our brains have been lost to other nations due to unemployment, the country presently has a doctor to patient ratio of 1 to 4,000, much more than the WHO recommendation of 1 to 600. All these negatively affects the human capital formation in Nigeria (Snapp, 2020)

 

1.3  Research Questions

From the above stated problems, this study tends to provide answer to the following arise research questions.

1. Is there a causal relationship between human capital development and economic growth in

Nigeria?

2. What is the long run impact of human capital development on Nigeria’s Gross Domestic

Product (GDP)?

 

 

 

1.4 Objectives of the Study

The broad objective of this study is to examine the relationship between human capital development and economic growth in Nigeria. Specifically, at the end of the research the study focuses on achieving the following objectives;

1. To investigate the impact of human capital development on economic growth in Nigeria.
2. To determine the nature of the relationship between human capital development and economic growth of Nigeria in the long run.

 

 

1.5  Research Hypothesis

The hypothesis of the study will be tested as follows;

H₀: There is no causal relationship between human capital development and economic growth in Nigeria.

H0: Human capital development does not affect economic growth of Nigeria in the long run.

 

1.6  Scope and Limitation of the Study

The research covers a period of forty (40) years from 1981 to 2020. The investigation is centered on the investment on human development and the effect of human capital development on economic growth in Nigeria. As expected, the conclusion of a work of this kind is not possible without some limitations. Due to the poor nature of storage facilities and data collection in Nigeria, obtaining up-to-date data was not easy. The accuracy of data used may not be 100% authentic but the possible effort will be put in to get a very reliable results for policy use. The time constraint encountered during the course of research, the researcher was also engaged with other academic work and so time devoted was cut down.

 

1.7  Significance of the Study

The finding of this study will be helpful to the Nigerian government, general public and policy makers in promotion of macro-economic stability through the promotion of human capital development in Nigeria. This study points out all factors hindering the process of human capital development in Nigeria, the government and its agencies will consider this resourceful in the implementation of policies to aid economic forwardness. In any case, this investigation combines latest information and quantitative examination to consider the effect of human resource. This research work could help students of the same or related discipline as related literature for their research. This research will be an addition to the body of literature in the subject area of economic development and human capital development in Nigeria and other nations.

 

1.8  Definition of the Terms

1. Economic Growth is the increase in an economic variable, variable may be real output or real output per capita or can even refer to an increase in production of goods and services over successive periods.

 

1. Education can be defined as a process of enlightenment, acquisition of knowledge, skill, values and experience which brings changes in individuals thinking and capacity to do thing.

 

1. Gross Domestic Product (GDP) represents the total monetary value of all final goods and services that were produced in an economy during a period irrespective of the people.

 

1. Government Expenditure is also known as government or public spending, it refers to total money spent by the government of a society to ensure economic welfare of its citizens.

 

1. Healthcare is known as the efforts to maintain or reinstate the mental and physical wellbeing by services offered by trained professionals.

 

1. Human Capital is said to be the economic value of qualities and abilities of labor that impacts productivity and economic output. It can also be defined as the collective knowledge, skills and intangible assets of individuals that can create economic value.

 

1. Human Capital Development is a process of acquiring and increasing the number of persons who have these knowledge, skills and experience that are crucial for the development of a country’s economy (okojie, 2005).

 

1. Human Development Index (HDI) is a summary measure of average achievement in key dimension of human development; a long and healthy life, knowledgeable and a decent standard of living.

 

1. Investment is allocation of money with expectation of positive returns and greater payoff in the future.

 

1. Labor Productivity is the amount of goods and services a group of individuals produce in a given amount of time, it is total output divided by the amount of labor used in a production process.

 

 

1.9  Organisation of the Study

This research work is divided into 5 chapters and it is structured as follows; chapter one covers the introductory background of the study, chapter two majors in the review of related literatures. In Chapter three is the research methodology while chapter four comprises of data presentation, analysis and interpretation. Lastly, chapter five is devoted to the summary, conclusion and recommendation.

HUMAN CAPITAL DEVELOPMENT AND ECONOMIC GROWTH: A CASE STUDY OF NIGERIA (1981-2020)

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