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1.1 Background to the Study

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 capita output growth is however an important component of economic welfare, (Abramowitz, 1981). It has been revealed that human beings are the most important and promising source of growth in productivity and economic growth. 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 reactivity. ( Adelakun 2011). The concept of human capital refers to the abilities and skills of human resources of a country, while human capital formation refers to the process of acquiring and increasing the number of persons who have the skills, education and experience that are critical for economic growth and development of a country (Okojie, 1995).

Human resources is all embracing, that is, it is inclusive of persons who works now, or are likely to be productively employed sooner or later. It is a continuum, a continuing 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. Yesufu (2000), in agreement with this view, opines that “the essence of human resources development becomes one ensuring that the workforce is continuously adapted for, and upgraded to meet, the new challenges of its total environment”. This implies that those already on the job require retraining, reorientation or adaptation to meet the new challenges. This special human capacity can be acquired and developed through education, training, health promotion, as well as investment in all social services that influence man’s productive capacities (Adamu, 2003)

Dees and Picken, (2000) has it that ‘human capital is generally known to consists of the individual’s capabilities, knowledge, skills and experience as reservoir of knowledge, skills and experience through individual learning. The highly educated, such as scientists and technicians, appear to have a comparative advantage in understanding and adapting new or existing ideas into production processes.No country has achieved sustained economic development without substantial investment in human capital. In the past, much of the planning in Nigeria was centered on the accumulation of physical capital for rapid growth and development, without the recognition of the important role played by human capital in the development process. (Oboh et al 2010) Human capital is recognized as an agent of national development in all countries of the world. Providing education and health services to people is one of the major ways of improving the quality of human resources. Apart from being issues of social concern, both provide an economy with healthy trained human resources required for economic growth and development. The implication of Lucas’ hypothesis on human capital is thus associated with investment in man and his development as creative and productive resources (Harbison, 1962).

The importance of human capital development to economic growth has been a motivating factor for scholars to examine the subject matter. For instance, several studies in Nigeria has examined, among other important issues, the nature of causality between human capital development and economic growth in Nigeria (Awe and Ajayi, 2010); the contributions of human capital to economic growth in Nigeria (Ogujiuba and Adeniyi, 2004; Omotor, 2004; Olaniyan and Okemakinde, 2008; Lawanson, 2009; and Diawara, 2009), the role of human capital in Nigeria’s economic development (Dauda, 2010), and human capital development challenges in Nigeria (Ugal and Betiang, 2003). These studies provide both theoretical and empirical foundation for the contributions of human capital to economic growth.Human capital is the term economists often use for education, health, and other human capacities that can raise productivity when increased. Health and education are two closely related human capital components that work together to make the individual more productive. Taking one component as more important than the other is unrealistic as a more educated individual, who is ill, is an inefficient as an illiterate, but healthy individual. Both components are thus related together because of their close relationship.

Appleton and Teal (1998), describe health and education as components of human capital that are contributors to human welfare. They describe these components as different from other types of goods produced in societies. While high incomes may be conducive to health it cannot be directly purchased like material goods and services. Health and education are often subsidized by the state and in some countries, education is compulsory for certain minimum length of time. The belief in human capital as a necessity for growth started in Nigeria during the implementation of the 1955-1960 Development Plan.

Expenditure on education became a matter of serious consideration from 1960 of Ashby commission report on (investment in education) which led to the increase in the university places available to Nigerians. Today with the importance of knowledge in the economy, human capital has increasingly attracted both academic and public interest. 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.

However, the UNICEF in its’ state of the world’s children’s report for 1999 pointed out that about four million Nigerian children have no access to basic education, and that majority of those that manage to be in schools are given sub-standard education (Akhaine, 1999). Today, there are over 48,242 primary schools with 16,796,078 students in public schools and 1,965,517 in private schools in Nigeria. In addition, Nigeria has over 7,104 secondary schools with 4,448,981 students (The Guardian, May 6, 1999 and Dike, 2001). Funding has been in response to conditionalities imposed by international financial institutions (IFIs).

Available statistics shows that federal government expenditure on education between 1997 and 2000 has been below 10% of overall expenditure. Moreover the national expenditure on education cannot be computed because various states expenditures on education cannot be determined, in relation to the UNESCO recommendation of 26% of national budgets (Igbuzor 2006). The Federal Government reformed agenda is anchored on the National Economic Empowerment Development Strategy 2002 (NEEDS) document. It was indicated that adult literacy rate of at least 65% by 2007 would be attained. The NEEDS recognize the centrality of human capital development towards 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. Using the UNESCO latest report 2010, clearly Nigeria is still very far from meeting the global economic development target of 2015 (Oboh et al. 2010).

1.2 .Statement of the Problem

Nigeria as a country is immensely endowed both in natural and human resources. The pool of resources from one end to the other is unquantifiable to such extent that, given a dynamic leadership, economic prosperity would have been achieved in late 20th century. Adelakun (2011), the primary focus of Nigeria has been finding a way to accelerate the growth rate of national income. And to engage in structural transformation of her subsistence and resource based economy to a production and consumption based economy in order to break the cycle of poverty, low productivity and stagnation. In spite of all these abundant resources, Nigeria has failed to realize her full development potential with the topmost priority currently given to sustainable human capital development or people oriented development by many countries and multilateral organizations, e.g. UNDP. The rate of illiteracy is very high in Nigeria, Most of the workers are unskilled and they make use of out dated capital, equipment and methods of production. By implication, their marginal productivity is extremely low and this leads to low real income, low savings, low investment and consequently low rate of capital formation and low growth. Therefore the strategy aimed at empowering the citizenry to acquire the skills and knowledge that would prepare them for the vast challenges.


Nigeria had invested in formal education for a period not less than 167 years (1842 to 2009). The number of primary schools had grown to above 50,000, 8275 post primary institutions and over 77 universities. Nigeria’s higher institutions have been turning out not less than 120,000 graduates yearly. The Federal Government and some corporate bodies via Educational Trust Fund (ETF) had been funding education. Comparing education funding of some countries in the Sub-African region, it is observed that Nigeria had never in any year met the minimum standard prescribed by the NESCO, which is 26% of total expenditure or annual budget of an economy.

Education expansion in Nigeria does not seem to equally match with expansion in economic growth (Ajayi 2002).   For instance, between 1970 and 1980, growth in primary school was 141%. For the post primary institutions, the percentage increase between 1970 and 1980 was 133 and 157% between 1980 and 2000. Tertiary institutions percentage increase between 1970 and 1980 is 160%, and between 1980 and 2000, 101%. Even more astronomical is the student intake at various levels of school. For primary schools, between 1970 and 1980 is 247% and between 1980 and 2000, was 104%.

In terms of post primary institutions, the growth rate of intake between 1970 and 1980 is 426% and between 1980 and 2000 is 239%. For tertiary institutions, the intake growth1970 and 1980 is 299%, between 1980 and 2000, 1689%. Equally, the growth rate of GDP (at 1984 factor cost) between 1970 and 1980 is 77.6% and 1980 and 2000, 25%. The growth in GDP is a distant comparison with the growth in the schools intake. Unfortunately, observing the growth of GDP per capita was -15.0, -7.7, -5.1 and -4.4 measured in percentage point for the years 1981, 1984, 1990 and 1999 respectively (Ayayi, 2002).


For knowledge Economy Index KEI), Umo (2006:5) states the following; South Africa 5.08, Mauritius 4.32, Egypt 3.77 and Nigeria 1.55. The simple observation here is that Nigeria stands at the bottom of knowledge economy. Education is generally considered to be an instrument of poverty reduction, but Nigeria’s case appears to be different. There is high level of poverty prevalent in Nigeria. For the population living below $1 a day in SSA for the period 1970 to 2001, Nigeria had the highest percentage of 70.2, closely followed by Zambia 63.7% while the least is South Africa 1.3%. Also there is high level of unemployment.( Obot et al 2010 ).


Generally, Ndiyo (2003: 372) is of the opinion that education in Nigeria has contributed very little to social capital expenditure. Therefore, what really matters in Nigeria is the empowerment of people and the mobilization of economic surplus into productive investment channels. There is also the need for the Nigerian economy to eliminate or minimize those constraints towards human capital development so as to enhance rapid economic growth. It is against these backdrops that we pose the following questions.

1.3 Research questions

  1. To what extent does human capital development contribute to economic growth in Nigeria?
  2. What is the type of relationship that exists between economic growth and human capital development in Nigeria?

1.4. Objectives of the study

In order to justify further the critical importance given to the development of human capital in Nigeria, the main objective of this study is to test and find out if there is any relationship between human capital development and economic growth in Nigeria. The specific objectives are:

  1. To examine the impact of human capital development on the economic growth in Nigeria.
  2. To establish if there is any causal relationship between economic growth and human capital development.

1.5   Research Hypotheses

These statements of hypothesis have been formulated to guide the study:

H0: Human capital development has no significant impact on economic growth.

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


1.6 Significance of the study

This research work serves not only as challenge to the academic pursuit of the researcher but also as a source of widening the educational horizon of the researcher.

The government and policy makers: The government and its agencies will find this work resourceful in formulating policy, directives and regulations for human capital development to aid economic growth.

The study also tends to provide information to leadership, managements of public and private sectors and government parastatals on human capital investment in the growth process.   For future study and knowledge: The research work will serve as a stimulant to other researchers.


1.5. Scope of the study

The research work examines the relationship between human capital development and economic growth. To show the ways through which human capital development can enhance economic growth in Nigeria, It uses a time series data from 1980 to 2012 covering a period of (31) years. The data for the study are reports from National Bureau of Statistic (NBS) and Central Bank of Nigeria (CBN) of various years.


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