Despite various efforts of the successive Nigerian governments, virtually all indices of human development especially those of health and education are embarrassingly low. Their effort seem abortive. It is in the light of the above that this topic is very timely “An empirical analysis of the Impact of Human Capital Development on Economic Growth of Nigeria from 1980 to 2011. The main objective of this study is to examine the nature of the relationship that exists between human capital and economic growth in Nigeria. In investigation into this, the researcher formulated null hypothesis; (H0) Human capital has no significant impact on economic growth in Nigeria (H1) Human capital has significant impact on economic growth in Nigeria. In evaluating this, the researcher adopted a linear regression model applying Ordinary Least Square (OLS) techniques. It was found out that human capital has a significance impact on Nigeria economy for the said period. Hence, the researcher concludes there is significance relationship between human capital variable and overall economic growth and also that human capital has some important elements of economic growth. And therefore, recommended that effort should be geared by government towards increasing education funding which is needed for our real sector in investment and industrial growth in Nigeria.
TABLE OF CONTENTS
Title Page i
Approval Page ii
Table of Contents viii
Chapter One: Introduction
1.1 Background of the study 1
1.2 Statement of problem 8
1.3 Objectives of the study 9
1.4 Research Hypothesis 10
1.5 Significance of the study 11
1.6 Scope and limitation of the study 12
- Detritions of Terms 12
Chapter Two: Literature Review
2.1 Theoretical Literature 14
2.2 Empirical Literature 32
2.3 Limitation of the Previous Study 38
Chapter Three: Research Design and Methodology
3.1 Research Methodology 40
3.2 Model Specification 41
3.3 Method of Evaluation 43
3.2 Decision Rule 45
3.5 Data Required and Sources 46
Chapter Four: Presentation and Analysis of Result
4.1 The Empirical Results 47
4.2 Examination of the Algebraic Signs of the parameters Estimate 48
4.3 Statistical Test of Significance 48
4.4 Evaluation of the Working Hypothesis 52
4.5 Implication of the Study 53
Chapter Five: Summary of Findings, Conclusion and Recommendation
5.1 Summary of the Finding 55
5.2 Conclusion 56
5.3 Recommendations 57
- BACKGROUND OF THE STUDY
At the start of the 21st century, the gap in the standard of living between the rich and poor countries was large. The developing nations suffer persistent poverty, while the developed world enjoys growing prosperity. According to Madison (2001:23) the ratio of per capital GDP in the richest group of nations to per-capita GDP in the poorest (Africa) grew from 11:1 in 1950 to 19:1 in 1998. this situation is undesirable and probably unsustainable. The challenge to economists is top recommend remedies that will close the gap by raising the grow rate of poor countries.
Useful prescription depends on accurate diagnosis. Why has the growth performance of poor countries been so disappointing? Among the many casual factors that economists have proposed includes: poor, inadequate, unproductive and ineffective human capital. Leeuwen (2007:125) posits that human capital is one of the biggest unknown of research on the determinants of economic development. The majority of empirical and theoretical literatures suggest the existence of a relationship between social indicator and economic growth. Human capital is deemed importance and special component of social development which can be accumulated and probably has external effects. Another important aspect of human capital is that it can be quantified.
The notion of human capital arose out of the awareness that physical capital alone was not enough to explain long-run growth. Many social indicators such as educational enrolment and life expectancy become combined in a common term: human capital. Often human capital is implicitly referred to as formal education yet; it can also contain factors such as the cost of raising children, health cost and ability (leuwen, 2007:123)
The popularity of human capital in historical research began in the 1950s as put forward by the human capital theory advocated by backer (1964) and Schultz (1961). The historian already used human capital, education or skills in their work before that period (Nakamura, 1981). Since then so many proxies have been used to measure human capital.
However, there is the need to look for a definition of human capital that includes both the qualitative and quantitative aspects of human capital that is, all educational and experienced components. That is, it has to include all aspects of learning but has to exclude all components associated with the physical body. Therefore, in the spirit of Leeuwen (2007), we will follow a definition in which human capital consists of all forms of knowledge which is defined by QECD (2007) as, “the knowledge, skills and competencies embodied in individuals that facilitate the creation of personal, social and economic well being”. The focus of this work lies in the employment of the above definition, after evaluating other alternative definition, in seeking for the determinants and component of human capital in Nigeria and its contribution to Nigeria’s economic growth.
Ogujiuba and Adenyi (2005) write that no country has achieved sustained economic development without substantial investment in human capital. Several studies have evolved to analyze the channels through which human capital can affect growth, citing (surveys include Barro and Salai-1 Martin, 1995;and temple, 1999). Most of these literatures have emphasized the complementary relationship between human and physical capital, nothing how imbalances in these two stocks as well as human capital externalities can affect economic growth. The highly educated, such as scientists and technicians, appear to have a comparative advantage in understanding and adapting new or existing ideas into production process.
Definitional, human capital development was described as an end or objective of development. It is a way to fulfill the potential of people by enlarging their capabilities, and this necessarily implies empowerment of people, enabling them to participate actively in their own development. Human capital development is also a means since to enhance the skills, knowledge, productivity and inventiveness of people through a process of human capital formation. Thus, human capital development is a people centered strategy, and not goods centered or production centered strategy of development. What really matters is the empowerment of people to identify their own priorities and to implement programmes and projects of direct benefit to them. This in turn implies the active participation of people in the development process and the consequent need to construct institutions that permit and indeed encourage that participation. People are assets-in fact a country’s valuable assets. It is essential for human development that these assets be deployed sensibly. A defective inventive system can result in a waste of human resources and often, too, in a higher incidence of poverty and greater inequality in the distribution of income. It is not enough to use existing resources through human capital formation.
The federal Government reform agenda is anchored on the national economic empowerment development strategy (NEEDS) document, it was indicated that adult literacy rate of at least 65% by 2007 would be attained. The NEEDS recognizes the centrality of human capital development in achieving economic growth. It was described as a vital transformational tool. Therefore, the strategy aims at empowering the citizenry to acquire skills and knowledge that would prepare them for the world of work. In order to achieve this, the strategy was designed to address the following crucial issues:
- Faithful implementation of the free, compulsory universal basic education law to others.
- Improve educational infrastructure
- Expand institutional capacity to produce quality manpower
- Expand total school enrolment to increase the literacy level
- Review of school curricula from primary to tertiary to incorporate vocational and entrepreneurial skills.
- Re-tooling and repositioning to technical schools to be able to address the technical manpower needs of the economy.
- Establishment of more vocational centers to encourage Nigerians to embrace vocational education.
- Review of school curricula at all level to incorporate the study of information and communication technology (ICT)
- In view of Nigeria’s position in, and vision of ECOWAS sub region, review school curricula to make the study of French language compulsory from primary to secondary schools.
- Expand existing special education programme including the virtual library project, the distance learning programme and the nomadic education programme.
- Sustain existing vocational/on-the job training programes of the federal government and encourage the states to do the same.
- The national youth services corps members. The orientation period will be extended to included to include a one-month period for formal training. Following the training, corps members will be posted mainly to industrial (small scale enterprises) and agricultural concerns, so that exposure will encourage them to consider the possibilities of post service self-employment.
In order to justify further the critical importance given to the development of human capital in Nigeria, the objective of this paper is to examine empirically the relationship between economic growth and human capital development using Nigerian data. This will be undertaken with a view to proffer some policy recommendations for the government in order to improve the human capital development situation in Nigeria and achieve ultimately higher economic growth.
The unique thing about this study is its ability to marry together both quantitative and qualitative measures of human capital to ascertain its contribution to economic growth. Other researchers have not ventures into this area but had only danced around it while emphasizing education as more proxy for human capital.
- STATEMENT OF THE PROBLEM
According to Maddish (2007), the ratio of per-capita GDP in the richest group of nation, to per-capital GDP in the poorest grew from 11.1 in 1950 to 19:1 in 1998. the same ratio between Mayer’s (2002) richest and poorest convergence group grew by factor of 1:3 from 1960 to 1:9 1995. this is undesirable. The challenge to economists is to find remedies that will close the gap by raising the growth rates of poor countries.
One of the prescriptions to solve the problem that has been offered by economist is improvement of human capital. Different theories of economic growth produce different answers to the question of how human capital affects a country’s per-capita GDP over time (Barr and Barro, 1996). The Schumpeterian growth theory emphasizes technological progress as the driving force behind long-run growth (Howitt, 2005). It is therefore an attempt of the researcher to indigenize human capital in economic growth theory and apply it to less developed country e.g Nigeria.
Apart from theoretical and empirical problems facing human capital and growth model, the following problems are facing capital development and economic growth in Nigeria highlighted.
- Poor education and health in Nigeria: HIV, malaria scourge and high rate of infant and maternal morality.
- Poor and inadequate infrastructural provision.
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 research work therefore, centers on the impact of human capital on economic growth of Nigeria.
- OBJECTIVES OF THE STUDY
The general objective of this study is to empirically evaluate the long-run impact of human capital on economy of less developed country (Nigeria).
The specific objectives of this study are:
- To access the impact of education on economic growth of Nigeria
- To examine the nature of the relationship that exists between labour force and economic growth of Nigeria.
- To access the effect of human health condition on economic growth of Nigeria.
- To evaluate the impact of gross capital formation economic on growth of Nigeria.
- To offer some recommendations to policy makers based on the findings of the study.
- RESEARCH HYPOTHESIS
The following hypotheses have been formulated to guide the study. They include:
H0: Education has no significance impact on economic growth of Nigeria.
H1: Education has significance impact on economic growth
H): Labour force has no significance relationship with
economic growth of Nigeria.
H1: Labour force has significance relationship with
economic growth of Nigeria.
H0: Human health condition has no significant impact on
economic growth of Nigeria.
H0: Human health condition has significant impact on
economic growth of Nigeria.
H1: Human capital development has no significant impact
on economic growth of Nigeria?
H1: Human capital development has significant impact on
economic growth of Nigeria?
- SIGNIFICANCE OF THE STUDY
The significance of this study lies in its ability to provide answer to the following questions that have eluded policy makers.
- What human capital actually is?
- why researchers use different proxies in representing human capital without clarifying how they relate to human capital.
- how does human capital relate to economic growth? What is the strength of the relationship between human capital and growth?
This study will be of immense help to researchers, academician, policy makers, student, and government as it present them with hard and comprehensive information that will aid decision making and policy formulation.
Generally, less developed countries (LDCs) which forms area of study in this work will benefit from the outcome of this research work.
- SCOPE OF THE STUDY
The research work would be limited to examining the impact of human capital on less developing economy of which Nigeria is one. The literature to be reviewed would consist of both international and local authors. Also the data for the analysis will be restricted to the economy of Nigeria and it will cover the period of 1980 to 2011.
- DEFINITION OF TERMS
Time series data: A time series data is set of observations on the values that a variable takes at different time.
- Human capital development (HCD): Human capital development is quantitative and qualitative aspects of human capital that is achieved through enhancing the skills, knowledge, productivity and inventiveness of people through a process of human capital formation.
- Total factor productivity: this is the overall measure of average productivity of all factor of productivity employed in an economy. It is the measure of the overall economies.
- Decennially: this represented a period of ten years.
- Quinquennially: this represented a period of every five year.
- Economic Development: when conceived as a multidimensional process, economic development involves major changes in social structures, popular attitudes and national institutions, as well as the acceleration of economic growth the reduction of inequality and eradication of absolute poverty. It therefore entail sustain elevation of an entire society and social system towards a “better” or “more human” life.
- Economic Growth: it is defined as an increase in real GDP per capita that occurs over time
- Gross Domestic Product (GDP): this is defined as the total market value of all final goods and services produced in an economy in a economy usually on year.
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