Analysis Of Human Capital Formation And Economic Development In Nigeria (1981-2015)

Project and Seminar Material for Economics

Abstract

This research work tries to investigate the analysis of human capital formation and economic development in Nigeria between 1981 to 2015. Major issues such as human capital formation and economic development, human capital formulated efforts in Nigeria, strategies for human capital development; problems of human capital formation in Nigeria as well as theoretical framework were ascertained. The neo-classical mode and multiple regression using ordinary least square (OLS) to analyze the relationship between the dependent and independent variables using GDPPC (gross domestic product per capital) as a proxy for economic growth and development was conducted.

The result shows that there is positive relationship between government expenditure on education and health while that of government expenditure on economic and social services is estimated to have a negative relationship. Finally, the policy recommendation arising from the study shows if government wants to increase the level of economic growth in Nigeria, then it should invest more on human capital and also roll out programmes that will encourage human capital development. One way this can be done is to increase the funding of the education sector in Nigeria as empirical findings from our study provided evidence that it has a positive significant relationship with economic growth in Nigeria.

Chapter One

Introduction

1.1 Background of the Study

In the past, emphasis had been placed on the accumulation of physical or material capital to the detriment of human capital in Nigeria’s quest for rapid economic development ignoring the fact that the major source of per capital output in any country; whether developing or developed with a market economy or centrally planned is an increase in productivity per capital output growth is however an important component of economic development or welfare. (Abramowitz, 1981).

From studies, it has been revealed that human beings are the most important and promising source of growth in productivity and economic growth and development. Equipment and technology are products of human minds and can only be made productive by people. The success of any productive program depends on human innovative ideas and creativity.

Human capital development according to Harbison and Myer (1964) is the process of increasing the knowledge, the skills and the capabilities of people in the society. Economists have recognized the centrality of the stock and rate of accumulation of human capital in the process of development. The crucial link between both processes has been aptly summarized by Kennedy (2004) as follows, manpower is the basic resources, and it is the indispensable means of converting other resources to mankind’s uses and benefit. How well we develop and employ will determine how much we will accomplish as a nation.

The stock of human capital like the stock of natural and physical increase will deteriorate and decay if not increased and maintained through public health sanitation, social welfare service, nutrition and guaranteed employment schemes. Therefore these relevant human capital formation indices should be integrated into the national development planning process in other to achieve sustainable growth and development.

The concept of human capital refers to the abilities and skills of human capital resources of a country, while human capital formation refers to the process of acquiring and increasing the number of person who have the skills, education and experience which are crucial for the economic and political development of a country (Okojie 1995). Human capital formation, Okojie (1995) argue is 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 investment in human resources which is also referred to as manpower development or human resources development.

Human resources are all embracing, and it is all inclusive of person who works now, or is likely to be productively employed sooner or later. In effect, human resources development encompasses virtually the whole population as its target. Therefore human capital formation is a continuous process from childhood to old age and a must for any society or enterprise that wishes to survive under the complex challenges of a dynamic world.

Education and training have been identified as the most important direct means of upgrading the human intellect and skills for productive employment (Yusuf, 2000). However, human capital formation transcends mere acquisition of intellectual development through professional and training organization; it also includes enterprise in house arrangement and even individual self efforts.

Human capital formation involves increased academic enrollment, government expenditure on education, health, economic service and other social/community services. Hence human capital formation is disaggregated into government expenditure on education, health and social/community services. Increased students enrollment from primary to tertiary level is a necessary condition for economic growth because its impact on the size of the labour force/academic enrollment in Nigeria has been on the increase since 1980. This in some ways reflects increase in government involvement in human capital development in Nigeria.

Education has a positive impact on the economy, therefore government expenditure on education and training is imperative if the aim is to propel the economy to higher level of productivity and income. Education helps in increasing skills and enabling them to adapt to new challenges.

1.2 Statement of the Problem

Recognition had been made of no significant economic growth by any country without adequate development of her human capital. In the past, much of the planning in Nigeria was catered 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. The Human Development Index provides a composite measure of three dimensions of human development, namely health, education and income; living a long and health life (measured by life expectancy), being educated (measured by adult literacy and education of primary secondary and tertiary levels) and having a decent standard of living (measured by purchasing power parity and income).

Manpower development was not seen as a necessity for the development of an economy. The question then arises, why should Nigeria not experience economic development in spite of the abundance of vast human and material resources and decade of elaborate manpower and development planning?

From independence in 1960, the Nigerian National leaders have been fairly aware of the task before the Nigerian nation. They were aware that Nigeria was underdeveloped and needed to be developed. They were however aware that Nigerian people who are indispensable uneducated and sticken by poor health and poverty. To this extent commissions were set up in ministries such as education, health national manpower board. Economic development research institutions, hospitals development banks and others have been established over the years. In addition of these developments (1985) was adopted since 1990. The objective of these plans and programmes include driving Nigeria into dynamic and self-sustaining economy, to build on human capital to reduce unemployment and to improve the standard of living of Nigerians.

The financial involvements of the Federal Government towards the achievement of these objectives have been on the increase from N6.2m in 1970 to N238.5m in 1980 and to N2, 819.1m, N67, 565.1m and N109, 455m in 1990, 2000 and 2002 respectively. Also that of health increase from N11.9m in 1970 to N360.5m in 1980 and to N823.2m, N18m, N181m and N63, 171.2m 1990, 2000 and 2002 respectively. Subsequently, other social/community service expenditure increase from N1.5m in 1970 to N529.6m in 1980 and to N1,797.4m, N16,940.8m and N49,272.5m in 1990, 2000 and 2002 respectively (CBN). The impact to these government expenditures on human capital may be seen in the tremendous growth of evaluation enrolment at all levels (primary, secondary and tertiary). For instance, academic enrolment figure increased from 2.4m in 1970 to 17.06m in 1990 and 32.3m in 2000 and 38.3m in 2002. The general health and life expectancy of the Nigerian people have increased over the years. The quality of social amenities may have also improved. The question now is how the expenditures or efforts have on human capital formation impacted on the economic development variables (gross domestic product and discomfort index?) Are these efforts enough to accelerate economic growth and development in Nigeria? The questions are exposed in the subsequent sections of this work.

In Nigeria the rate of illiteracy is very high. Most of the workers are unskilled and the make use of outmoded capital, equipment and methods of production. By implication, their marginal productivity is extremely low and this leads to low real income, low saving, low investment and consequently low rate of capital 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.

Available information from the past labour force sample surveys and school levers unemployment tracer shows that unemployment is no longer confined to certain discipline to urban areas. It was shown that unemployment rate in the urban areas for September 1986 and 1987 were 10% and 12.2% respectively. Comparable figures for rural areas were 4.1% and 6.2% respectively. One worrisome development however is the apparent surplus of almost all the discipline in the labour market. It is no longer difficult to find some professionals such as land surveyors, medical doctors, engineers, and accountants etc who are unemployed, in the economic and statistical review of the federal ministry of national planning (1981).

In views of these situations, the researcher intends to examine and expose the problems of manpower development as a contributing factor to poor economic development in Nigeria.

In the light of the problem therefore, this study seeks to answer the following questions:

Does human capital development impact on economic growth in Nigeria?
Is there a long run relationship between Human capital development and Economic growth in Nigeria?

1.3 Objectives of the Study

The broad objectives of this research are to evaluate and appraise the positive impact of human capital formation on economic development in Nigeria.

The specific objectives of the study are;

To examine the impact of human capital development on Economic growth in Nigeria
To determine the long run relationship between human capital development and economic growth in Nigeria.

1.4 Research Hypothesis

The following hypothesis will be tested in the work.

Ho: Human capital formation has no impact on economic growth in Nigeria
Ho: There is no long run relationship between human capital development and economic growth in Nigeria

1.5 Significance of the Study

This study will be useful to policy makers, economists, health and education experts, students and other stakeholders including the government.

The findings of this study would prove useful in the following ways:

The findings would provide a means through which economic growth and human capital development would be largely achieved through increased knowledge, skills and capabilities acquired through education and training.
The result of the study would make it clear that a country which is unable to develop the skill and knowledge of its people and to utilize them effectively in the national economy will be unable to develop anything else.
On the basis of the result of this study, it will be understood that human resources are a critical variable in the growth process and worthy of development.
The result of the study will make us to understand the role of human capital in economic growth and political transformation.

1.6 Scope of the Study

This study will make use of annual time series data for Nigeria between 1981-2015. The analysis of human capital formation and economic Nigeria between 1981 and 2015 will be the focus of the study. The choice of this period is necessary because of the concerted effort by the nation to develop its human capital during the structural Adjustment programmes (SAP) and post SAP eras and the trend of human capital formation on economic development of the nation

1.7 Definition of Terms

Human Capital Formation:

The term human capital formation implies the development of abilities and skills among the population of the country.

Human capital formation is the process of transforming the people in a country into workers who are capable of producing goods and services. During this process, relatively unskilled individuals are given the tools they need to contribute to the economy.

According to Harbison, the human capital formation indicates, “the process of acquiring and increasing the number of persons who have the skills, education and experience which are critical for the economic and the political development of the country. Human capital formation is thus associated with investment in man and his development as a creative and productive resource.”

Human Capital:

Refers to the abilities and skills of human resources.

Economic Development:

Is the development of economic wealth of countries, regions or communities for the well-being of their inhabitants. From a policy perspective, economic development can be defined as efforts that seek to improve the economic well-being and quality of life for a community by creating and/or retaining jobs and supporting or growing incomes and the tax base.

Chapter Five

Summary and Policy Recommendation

5.1 Summary of Major Findings

The aim of this present research project was to examine the effect of human capital formation on economic development in Nigeria from 1981-2015. Human capital formation was proxied by three (3) key variables which include government expenditures on health, education and social service sectors of the Nigerian economy. The effects of these proxy variables for human capital formation were examined on economic growth and proxied by GDP per capita using ordinary least square estimation techniques. The empirical results from our study revealed the following:

There exist a long run relationship between human capital formation and economic growth in Nigeria. This finding supports the previous finding of Jaiyeoba(2015).
Government expenditure on education sector exerted a positive significant effect on economic growth in Nigeria. The implication of this finding is that investment in human capital via expenditure on education is having a positive significant impact on economic growth of the Nigerian economy.
Government expenditure on health is also estimated to have a positive relationship with economic growth in Nigeria. However, this positive influence was found to be statistically insignificant.
The empirical findings of the study further provided evidence that expenditure on the economic and social service sector has a negative significant relationship with economic growth in Nigeria implying that the higher government spends on the economic and social sectors of the economy, the lower the level of economic growth.
Misappropriation of public funds by public officials and discrepancies in budget allocations and implementation were adduced as of the reasons that might give rise to this kind of result.

5.2 Recommendation

Based on the empirical findings of the study, the following policy recommendations are suggested:

If government wants to increase the level of economic growth in Nigeria, then it should invest more on human capital and also roll out programmes that will encourage human capital development. One way this can be done is to increase the funding of education sector in Nigeria as the empirical findings from our study provided evidence that it has a positive significant relationship with economic growth in Nigeria.
Government should set up special monitoring teams that will track and monitor the expenditure on the health sector to ensure that it significantly influence the growth of the Nigerian economy.
Finally, government should also eliminate all forms of corrupt practices in its agencies and ministries charged with responsibility of implementing the budget on economic and social service sector so as to reverse the negative trend where increase in government spending on the sector decreases economic growth in Nigeria.

5.3 Conclusion

This study has been able to analyze the impact of human capital formation and economic development in Nigeria between 1981 to 2015. There should be an increase in government expenditure on Education and health in the country. Although challenges which lie ahead of the government in the economy are enormous, given the policy recommendations such as investing more on human capital and also roll out programmes that will encourage human capital development as well as setting up monitoring teams that will track the expenditure on the health sector and also eliminate all forms of corrupt practices, there is need for government to concentrate more on the education of its citizens and also increase aggregate spending on health facilities in the economy.

In addition, serious research on the nature pattern of human capital formation in the country should be carried out with the aim of ensuring steady growth in human capital and hence economic development in the country.

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