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Impact of human capital on Nigeria economy from 1980-2012

Impact of human capital on Nigeria economy from 1980-2012

CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

Nigeria’s most important macroeconomic objective remains how to achieve accelerated economic growth and reduce poverty. In order to achieve this laudable objective, certain variables which have the capacity to accelerate growth have to be identified. Of all the contributory variable or factors to economic growth and increased productivity, human capital stands out as a major catalyst. To this end, effective investment in human capital is a key component of long run economic growth and improved productivity. The United Nation Development Programme (UNDP) 1997 support this fact and argued that development should focus on investment in human capital which should be seen in the light of how the economy is managed and wealth is distributed for the benefit of the people.

Human capital development could therefore, be defined as the knowledge, skills, abilities and capabilities possessed by people. Stiglitz and Boadway (1994) define human capital as the stock of accumulated skills and experiences that make workers more productive. Schultz (1993) also defined the term “human capital” as a key element in improving a firm assets and employees in order to increase productivity as well as sustain competitive advantage.

Human capital development refer to processes that relate to training, education and other professional initiatives in order to increase the levels of knowledge, skills, abilities, values, and social assets of an employee which will lead to the employee’s satisfaction and performance, and eventually on a firm performance.

Economic Growth on the other hand is an increase in real output or real per capita output of an economy (Udabah, 1999). Similarly, Kuznets (1973) also defined economic growth as a long term rise in capacity to sustain increasingly, diverse economic goods and services to its population, growing capacity based on advancing technology, institutional and ideological adjustments that it demands. The interpretation of economic growth emphasizes a “sustained” rise in the output level which is the only manifestation of economic growth.

Human capital is all embracing, it is inclusive of persons who work now, or are likely to be productively employed sooner or later. It is a continuum 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 (Okojie, 1995).

In Nigeria, the level of investment in human capital which is reflected in the expansion of educational system from 1980 to 2003 indicates that enrolment in primary school was 12.2 million in 1980, declining thereafter to 11.5 million in 1987. Since 1988, both enrolment and number of primary schools have increased progressively to 26.3 million and 52,815, respectively, in 2003. The student-teacher ratio in primary school which stood at 35 in 1980 rose to 44 in 1986, declining thereafter to 36 in 1990. From there it rose to 60 in 1995 declining afterwards to 53 in 2003 (Central Bank of Nigeria, 2004).

Prior to the Second World War (1939-1945), academic discourse on the relationship between education and economy was insignificant. However, later studies by Schultz (1961), Denison (1962) and a host other economists confirmed that the economy depended on education to foster growth.

Similarly, health is fundamental to economic growth and development and is one of the key determinants of economic performance both at the micro and macro levels. This is derived from the fact that health is both a direct component of human being and a form of human capital that increases an individual’s capability (Bloom and Canning, 2003). Grossman (1972) has equally demonstrated that health is a form of human capital. Schultz (1992) argued that population quality is the decisive factor of production and emphasized the merits of investing in education and health (see also Bloom and Canning, 2000 and 2003).

Meeting the commendable United Nation’s health Millennium Development Goals (MDGs) of a reduction by two-thirds in the under-5 mortality ratio and a reduction by three-quarters in maternal mortality, and halting and beginning to reverse the spread of HIV/AIDS, malaria and other major diseases by 2015 will be completely elusive for Sub-Sahara African countries like Nigeria if sufficient attention is not paid to health expenditures. In the same vein, eradicating illiteracy as one of the objectives of the (MDGs) will be a concept if adequate attention is not given to educational expenditure by the federal government. It is against this backdrop that this paper examines the correlation between Expenditures on Education and Health Services, and Economic Growth in Nigeria. Among other objectives, the paper focuses on the impact of human capital development on the economic growth of Nigeria within the period under review with a view to ascertaining the relative commitments of the governments to develop human resources in the country.

1.2       Statement of Problem

No country has ever achieved sustained economic development without huge investment in her human capital which is manifested in expenditure on education and health. All the developed economies recognized this and this account for huge investment in education. On the other hand the under-developed or developing countries have paid little attention to their human capital which is the cause will they are still referred as underdeveloped countries.

Similarly, the increase in the Gross National Product (GNP) depends on the national expenditure on education. For example, Harbison and Myers (1964) found a significant Statistical relationship between levels of human capital development and the levels of GNP. Human resources of a nation refer to the totality of population of a country, which determines the potential labour force of a nation. Investment in the human resource determines the type, quality, availability and productivity of the nation’s manpower. It involves the socio-economic development strategies (European Commission, 2007).

The United Nation recommended that at least 26% of the annual budget of a country should be allocated to education sector in order to enhance human capital development. However, the human capital development indices in Nigeria do not reflect a substantial expenditure on education and health. For instance, an insignificant proportion of financial resources (less than 10% of local government expenditure) in 2009 were allocated to educational sector.

Poor investment in human capital development in Nigeria has led to a situation of mass unemployment in the country, low per capita income, poor standard of living which is the major concern of many policy makers and researcher all over the world. Or why should Nigeria be called underdeveloped country in the face of many natural endowment which if properly utilised can increase the country growth and consequently increase human development in general.

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 a dis-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. It is designed to estimate the impact of human capital development on economic growth.

  • Research Questions

In the course of carrying the research work, the research question to guide the researcher is given below.

  1. Does human capital development has any significant impact on the economic growth of Nigeria?
  2. To what extent does long-run relationship exist between human capital and economic growth in Nigeria?
  3. Is there any causal relationship between human capital development and economic growth of Nigeria?
    • Objectives of Study

This study has the central objective of exploring issues relating to how human capital can influence Nigeria’s economic performance by facilitating the investment in education and health, while in specific terms, the study is set to: .

  1. Ascertain if human capital can contribute significantly to Nigeria’s economic growth.
  2. Determine the extent to which long-run relationship exists between human capital and economic growth in Nigeria.
  3. To examine if there exist any causal relationship between human capital development and economic growth of Nigeria.
    • Statement of Hypothesis

This provides tentative answers to research questions subject to proof or otherwise by the evidence from the study. Hence the working hypotheses of the study are stated as follows:

  1. H0: Human capital development has no significant relationship with economic growth in Nigeria.
  2. H0: There is no long-run relationship existing between human capital and economic growth in Nigeria.
  3. H0: There is no causal relationship between human capital development and economic growth of Nigeria.

1.6     Significance of the Study

The impact of human capital development on the sustainable economic growth of any nation cannot be over-emphasized. This work will be of great importance to the general public, government and its agencies.

Also, it will be of great importance to the ministry of education, ministry of health as well as school administrators. Above all, it will be a foundation for economist, students and researchers who have interest on human capital.

1.7   Scope and Limitation of Study

This research aims to analyse the impact of human capital on Nigeria economy, taking a good analysis on various ways and means put by the government of Nigeria to enhance human capital since 1980-2012.

The researcher encountered a number of constraints in the course of this work to include; data sourcing or data inconsistence due to poor nature of information management in Nigeria. Other constraints are; time factor, financial constraints and host of other constraints that prevent the researcher to present a better work than this.

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