Impact Of Government Spending On Human Capital Development And Economic Growth In Nigeria

Project and Seminar Material for Economics

Impact Of Government Spending On Human Capital Development And Economic Growth In Nigeria


The study examines the impact of government spending on human capital development and economic growth in Nigeria in Its analysis is predicted on multivariate co integration where real GDP growth rate is the dependent variable while recurrent expenditure on education, real gross capital formation, primary enrolment; post primary education enrolment and tertiary education are independent variable. It finds that capital formation; post primary education enrolment; tertiary education enrolment and recurrent expenditure on education promote economic growth in Nigeria. The coefficient of tertiary institutions emanating from factors such as inadequate funding, weak infrastructure, incessant strike, and disruption in academic activities. Government should appreciate the fact that no country can develop above is educational base..

Chapter One


1.1 Background to the Study

No country can achieve sustainable economic growth without a reasonable expenditure in human capital. As the global economy shift towards the knowledge-based economy, skills and human capital has become a central issue for policy-makers and practitioners engaged in fostering economic growth. Human capital is a broad concept which identifies human characteristics which is acquired and aimed at increasing income; commonly viewed to include peoples’ knowledge and skills; acquired partly through education, their strength and vitality, which are dependent on their health, nutrition and an atmosphere that paves way for human development through government social services. It is of paramount concern that human capital theory which focuses on health and education as inputs to economic production is in contrast to the concept of human development which views health and education as intrinsically valuable outcomes to be placed alongside economic production as measures of human welfare.
According to ADB (1998), human capital development is an essential means of sustained economic growth and poverty reduction and also an end in itself. World Bank (1995) in the assessment of 192 countries examined the contribution of human capital to development and concluded that human capital on the average, accounts for 64% of the total wealth, while physical and natural capital accounts for 16% and 29% respectively. The goal in investment in education is to create the skills and attitudes needed for higher levels of productivity and growth. The significance of education in nation building cannot be overemphasized since its economic contribution benefits both the individual directly and the society indirectly (Enueme, 1999). Investment in education and training is imperative to propel the economy to higher level of productivity and income and thereby accelerate the rate of economic growth in developing countries. Education enhances the number of knowledgeable workers by improving their skills and exposing them to new challenges.

The progressively large availability of international data on health care has led to the development of a vast array of studies disentangling the underlying factors that determine health care expenditure, such as income, aging, time effects and availability of factors. Ichoku and Fonta, (2006) observed that increased budgetary allocation to health has assisted some heavily-indebted poor countries to fight poverty and raise the standard of living of the people. It is therefore expected that budgetary allocations to health sector would improve health outcome and reduce all kinds of mortality rate. In Nigeria, government expenditure has always been on the increase due to the flow of revenue from production and sales of crude oil. This is however accompanied by huge demand for public goods such as roads, electricity, education, health, external and internal security and so on.

Within this context, statistics has it that government expenditure (capital and recurrent) have continued to rise in the last forty (40) years. For instance, total capital and recurrent expenditure according to Taiwo and Agbatokun (2011) increased from N10, 163.3million in 1980 to N24, 048.6million and then N36, 219.6million in 1990 and further increased to N46, 160million in 2000. Starting from 2001 to 2009, it increased from N438, 696.5million to N579, 300million and then from N1, 152,796.6billion to N2, 131,906billion respectively. Similarly, the increase in expenditure feature more on education, internal and external security, health, agriculture, construction, transport and communication. Education expenditure as a ratio of total government expenditure between 1975 and 2007 averages 6.97% and varies from 2.22% to 14.30%. This fell below the minimum standard of 26% of annual budget prescribed by the United Nations Scientific and Cultural Organization.

The emerging trend shows that education expenditure as a ratio of GDP follows the same trend. It ranges from 0.39% to 7.86% with a mean of 1.62% (Dauda, 2011). Public health expenditure in Nigeria accounted for just 20-30% of total health expenditure, private expenditures on health account for 70-80% of total health expenditure. The prevailing private health expenditure is out-of-pocket expenses, and this accounts for more than 90% of expenditure in health. Out-of- pocket expenditure as a proportion of total health expenditure averaged 64.59% from 1998 to 2002. In 2003, it accounted for 74% of total health expenditure (THE). It decreased to 66% in 2004 and later increased to 68% in 2005 (Soyibo, 2005; Soyibo, Olaniyan and Lawanson, 2009). This implies that households bear the highest burden of health expenditure in Nigeria.

The $5 per capita expenditure on health in Nigeria is far below the $14 recommended by World Bank for Africa and much lower than the $34 per capita recommended by the World Health Organisation Macroeconomic Commission for Health for low-income countries to provide basic health care services. Remarkably, the federal government budgetary component of health expenditure in Nigeria has increased over the years. It increased from 1.7% in 1991 to 7.2% in 2007 (WHO, 2009; NHS, 2011). Nevertheless, the budgetary allocation for health is still below the 15% signed by the Nigerian government in the Abuja declaration (WHO, 2009). Given this level of government spending, it will be very difficult to provide the essential health care services and with the unpredictable change of the oil prices in the world market and low tax base, health care will always be at the peril of underfunding by the Nigerian government.

Despite the increase in government expenditure, human capital has not translated into reasonable growth and development. Currently, Nigeria is still ranked as one of the poorest in the world attributed to uneven distribution of finance and facilities to the sector. On the other hand, despite the budgetary provision for human capital development, there is lack of adequate personnel and facilities to provide quality care for the citizenry. In view of the outcome of researchers from countries in which economic growth is accelerated by reasonable expenditure on human capital and given the discrepancy emanating from the Nigerian economy, it is necessary to investigate whether expenditure in human capital is important in enhancing economic growth in Nigeria.

Human capital is also a means since it enhances their skills, knowledge, productivity and intensiveness of people through a process of human capital development formation broadly conceived. Thus, human capital development is people centered strategy and not goods centered or production centered strategy of development. What truly matters is the empowerment of people to identify their own priorities and to implement programmes and projects of direct benefit to them.

The impact of social spending on economic growth is gaining prominence in the literature. It is becoming increasingly important to investigate the effect of good public health system andquantitative education on the economic growth of nations of the world.

Productivity has long been linked to both quality health care and good education. Basic education is critical to participation and productivity in economic life. A healthy labour force increase both the amount of growth realized from establishing a sound investment climate and strongly reinforce the poverty reduction benefits from that growth. This example of education clearly shows that the two pillars of investment climate and development are closely connected to support each oilier.

Todaro (2000) states that education serves the dual purpose of increasing both empowerment and economic growth. In the first instance, education allows people to be more aware of theirresponsibility and their fundamental and qualified rights. It opens up an opportunity to know how to do things better.

This in turn not only increases individual income, it increases that of the nation and this economic growth aims to improving people’s life. However, it does not mean education provision, there is the better societies need to look carefully at the nature and allocation of education provision in relation to the needs and aspiration of the society. Education indicates knowledge and. skills which raise productivity, but it can also perpetuate social, inequalitiesimpair values attitudes and aspirations that are not conducive to development.

Government expenditure lean toward teaching, hospital, tertiary e.t.c. Improvement in the could be either improving the income of the people so that they can obtain quality health care or improving the health care facilities. Increasing the income of the people to provide for themselves quality health care has been found to be tremendous benefit to the people of the third world countries e.g Nigeria. It has been potential positive impact on the national income of the nation.

1.2 Statement of the Problem

In every country of the world, human capital development has been world one of the main factor of economic growth and development and it is known that there cannot be significant economic growth in the country without adequate human capital. In the past, mush 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 the human capital development process.Infact a country’s most valuable assets are people and a defective incentive system can result in waste of human resources through human capital formation.

However, in spite of the increased academic interest in the subject under discussion, several issues relating to the human capital development and economic growth relationship remain hitherto unsettled. Chief among these issues relate to the fact that the empirical linkage between human capital development and economic growth in Nigeria is yet unclear. This is because a good number of studies that have examined the influence of human capital development on the Nigeria’s economic growth have generated varying outcomes (Lawanson, 2009; Ogujiuba and Adeniyi, 2004). Furthermore, while a long run relationship has been established between human capital development and economic growth in Nigeria, the impact of an aggregation of capital and recurrent expenditures on health and education respectively has not been sufficiently addressed by researchers. This study is therefore carried out to fill some of these gaps.

1.3 Objectives of the Study

The main objective of this study is to examine the impact of government spending on human capital development and economic growth in nigeria.

Specifically, itaims at:

  1. Examining the role of capital formation on the country’s GDP.
  2. Ascertaining the effect of government healthexpenditure on economic growth
  3. Finding the impact of current expenditure on education in real GDP growth rate.

1.4 Research Question

  1. What is the role of capital formation on the country’s GDP ?
  2. What is the effect of government health expenditure on economic growth ?
  3. What is the impact of current expenditure on education in real GDP growth rate ?

1.5 Hypothesis

  • HO: There is no significant relationship between human capital development and economic growth in Nigeria
  • HA: There is significant relationship between human capital development and economic growth in Nigeria

1.6 Significance of the Study

Significantly, education and training contribute to workers stock of human capital – the knowledge and skill that make for a product (GDP) in Nigeria.

However, improvements in labour account for about two-thirds of the increases in real Gross Domestic Products (GDP). Improved technology, more capital, greater education and training, economies of scale, and better resources allocation will be the main contribution to Nigeria growth if policy options emanating from this study are implemented. Moreimportantly, technological advancement is a critical engine of productivity growth and has accounted for the increase in output growth In Nigeria. Generally, technological advancement is generated from the discovery of new knowledge, which enables for resources to be combined in improves ways.

1.7 Scope / Limitations of the Study

The study covers the period; 1977-2006. The period coincides with the oil boom era,Pre-SAP, SAP and post SAP era, globalization period and era of economic reforms.

1.8 Limitation of Study

Financial Constraint

Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time Constraint

The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.9 Definition of Terms

The operational definition of this study includes

Human Capital Development:

This is defined as the process of acquisition of knowledge and utilized its in production process

Capital and Recurrent Expenditure:

This involves government long term or short term spending on directed towards the effective operations of various sectors in the economy.

Economic Growth:

This can be defined as an improvement in economic indicators of a country in this case the total output is used.

1.10 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows.

  1. Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  2. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  3. Chapter three deals on the research design and methodology adopted in the study.
  4. Chapter four concentrate on the data collection and analysis and presentation of finding.
  5. Chapter five gives summary, conclusion, and recommendations made of the study.

Chapter Five

Conclusion and Recommendations

Using the augmented Solow human-capital-growth model, this study empirically investigated the impact or effect of human capital development on the Nigeria economy. The Johansen 2 likelihood ratio test statistics, the trace and maximal eigenvalue cointegration test statistics reveals two cointegrating two cointegrating equations or vectors among the variables of interest. The regression estimates shows that all the independent variables – gross total capital formation, total stock of human capital and total government expenditure on education, are statistically significant in the determination of the level of the economy’s output. This implies that they cannot be ignored if we must achieve economic growth and development in Nigeria. Furthermore, the result indicates that all the independent variables, in line with theory, exhibit positive relationship with output level. This means that a greater amount of each would engender increase in output level or rise in the growth of the economy. Also, the regression result reveals that all the independent variables are relatively inelastic with respect to their relationship with the dependent variable.

Policy Recommendations

The following policy recommendations are made on the basis of findings of the present study
as to how government can boost the economic growth of Nigeria through the positive
contribution of human capital development:

  1. The Nigeria government should increase its total expenditure on education so that adequate educational facilities for thorough and proper quality education delivery would be made available.
  2. The Nigeria Government should ensure sufficient budgetary allocation on health expenditure in order to make proper health care facilities available to Nigeria citizens.
  3. The Nigerian government should ensure a standard is set across all secondary and tertiary institutions in the country so that proper human capital required for any individual to become productive is enhanced.
  4. The Nigeria government should make health care and education more accessible through improving its affordability to the common individual in society so as to boost the economic growth of Nigeria through human capital development.
  5. Government and policy makers should as a matter of urgency give high priority to human capital development.
  6. Concerted and sincere efforts should be made in building and developing human capacity through adequate educational funding across all levels since it remains the major way of attaining sustainable economic growth and development

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