Impact Of Human Capital On Economic Growth In Nigeria

Project and Seminar Material for Economics

Impact Of Human Capital On Economic Growth In Nigeria


A nation cannot experience economic growth without human capital development. For human capital to actually have any impact on economic growth some investment has to be made. Investment in human capital consist of ;education, training, health and other social services, that will help in enhancing productive capacity of labour. This project examines the impact of human capital on economic growth in Nigeria from 1980-2006. The study used the ordinary least square technique(O L S) to determine the relationship between human capital and economic growth. This finding demonstrate the relevance of real gross domestic product in boosting the human capital development through the ratio of student enrollment in schools.

Chapter One


1.1 Background of 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 is, 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 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 individually 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 labour 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 labour force is lacking in skills and knowledge growth rate will be seriously limited without the latter. Human is then one’s income depends partly on the rate of return on the human capital one owns, which allows on the receive a flow of income which is like interest earned. Human capital is substitutable though it will not replace land, labour 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:

  1. They are not part of the physical body and there is therefore no chance of double counting.
  2. They can not be separate from such things in human capital such as experience.

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 embodies 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 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,

…The 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 Nigerian: 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 constitute investments in human resources, which is also referred to as manpower development or human resource development. Human capital can be acquire 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: can 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 (Todaro 2003) these are;

  1. 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.
  2. To increase the availability and widen the distribution of basic life sustaining goals such as food, shelter, health and protection.
  3. 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.

Nigerian 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 196-65 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 parts 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 1980’s 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 it’s foreign debt; lower population growth through a combination of effective family planning programme.

Improve 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 (Todaro 2003).

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 socioeconomic 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 Problems

“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”.

The 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 Nigerian 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 Objective 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.
  4. To ascertain the relationship between human capital and economic growth

1.4 Research Hypotheses

For the successful completion of the study, the following research hypotheses were formulated by the researcher;

  1. H0: there is no impact of education on economic growth in Nigeria
    H1: there is impact of education on economic growth in Nigeria
  2. H02: there is no relationship between human capital and economic growth
    H2: the relationship between human capital and economic growth

1.5 Significance of the 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.

1.6 Scope and Limitation 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 1975-2015 and it will be restricted to the Nigerian economy. The researcher encounters some constrain which limited the scope of the study;

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

c) Organizational Privacy:

Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.

1.7 Definition of Terms

Human Capital:

Human capital is a term popularized by Gary Becker, an economist from the University of Chicago, and Jacob Mincer that refers to the stock of knowledge, habits, social and personality attributes

Economic Growth:

Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP.

1.8 Organization of the Study

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

  • 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.
  • Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  • Chapter three deals on the research design and methodology adopted in the study.
  • Chapter four concentrate on the data collection and analysis and presentation of finding.
  • Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five

Summary, Conclusion and Recommendation

1.0 Introduction

It is important to ascertain that the objective of this study was to ascertain the impact of human capital on economic growth in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of human capital on economic growth in Nigeria

5.1 Summary

This study was on the impact of human capital on economic growth in Nigeria. Four objectives were raised which included: To ascertain the impact of education on economic growth in Nigeria, does openness to trade and human capital promote faster economic growth, to make policy recommendations based on the findings of the research, to ascertain the relationship between human capital and economic growth. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of ministry of economic development in Abuja. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made administrators, managers of youth development, senior staff and junior staff were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies

5.2 Conclusion

The main objective of this paper was to investigate the impact of human Capital on economic growth for Sudan over the period of 1975-2015 by using a simultaneous equation model that links human capital i.e. school attainment; and investment in education and health to economic growth, total productivity, foreign direct investment, and human development index. The empirical results of the paper show the following; first the quality of the education has a determinant role in the economic growth, the highly educated people are influencing more the economic output than the secondary educated ones. Second, there is an adverse effect of the ratio of government total expenditure to GDP on the ratio of foreign direct investment to GDP which can be attributed to the concentration of the governments on consumption activities rather than productive activities; third, health quality factor has a positive impact on economic growth as expected

5.3 Recommendation

Consequent upon these findings, government and policy makers should as a matter of urgency give high priority to human capital development. 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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