The impact of human capital on economic growth in Nigeria


The impact of human capital on economic growth in Nigeria


Human capital refers to the stock of competencies, skills, knowledge and personalities attribute embodied in individuals which facilitate their ability for the creation of personal, economic and social value (OECD, 2001), labour is one of the factors of production and can also be referred to as workforce.

Ojo and Oshikoya (1995) in their study found that literacy rate is positively related to per capita output growth, using other indices such as school enrolment, they found out that the sign of the coefficients were theoretically plausible also in the Zimbabwean economy. Arora (2001) in his study discovered that there is a cointegrated relationship between health and income; innovations in health according to him lead to economic growth and not vice versa.

Garba (2002) carrying out a cross-country analysis using regressions showed that there is positive correlation between educational attainment and economic growth and development.

Loening (2002) investigated the impact of human capital on economic growth through the application of error correction mechanisms. He examined two different channels by which human capital is expected to influence growth. The result revealed that a better educated labour force appeared to have positive and significant impact on economic growth via factor accumulation as well as on evaluation of total factor productivity.

Adamu (2003) determined the impact of human capital formation on economic growth in Nigeria between 1970 and 2000 using cointegration and error correction mechanisms. The result indicated that investment in human capital in form of education and training can lead to economic growth because of its impact on labour productivity.

Gyimah-Brempong, Paddison and Mitiku (2006) investigated the effect of higher education human capital on economic growth in African countries using panel data over the 1960–2000 period, a modified neoclassical growth equation, and a dynamic panel. They found that all levels of education human capital, including higher education human capital, have positive and statistically significant effect on the growth rate of per capita income in African countries. Their result differs from those of earlier research that find no significant relationship between higher education human capital and income growth. They also claimed that the growth elasticity of higher education human capital is twice as large as the growth impact of physical capital investment. While this is likely to be an overestimate of the growth impact of higher education, it is robust to different specifications and points to the need for African countries to effectively use higher education human capital in growth policies.

Nabil, Simon and Yu (2007) examined the dynamic effects of public investment in human capital in the Canadian context of population ageing using a computable overlapping-generations model (OLG). The decisions of time allocation between learning, working and leisure activity are endogenously determined in the model and react differently to tax policy changes. Learning time and public expenditures on education both improve human capital accumulation and effective labour supply. The simulation results indicated that a tax-financed increase in public spending on education may have significant crowding-out effects in the short run. In the long run, however, higher education incentives may increase the rate of human capital accumulation which in turn could mitigate the negative effects of population ageing. Furthermore, economic and welfare effects analysis shows that the impact depends on the distortions implied by alternative tax instruments and the productivity of public expenditures on education.

Lawanson (2009) in his work used an ordinary least squares model to estimate the role of education and health in human capital investment and economic growth in Nigeria. He found that on the average, human capital actually enhances economic growth in Nigeria although, the government expenditure on health and primary education enrollment have negative coefficients which are inconsistent with a priori expectation.

Dauda (2010), in his study on human capital formation and economic growth in Nigeria used the endogenous growth model in his investigation into their relationship, she employed enrolment in the different levels of education, primary, secondary and tertiary as proxies for human capital and found long-run positive relationship between human capital formation and economic growth in Nigeria with a feedback mechanism.

Amassoma and Nwosa (2011) studied the causal nexus between human capital Investment and economic growth in Nigeria for sustainable development in Africa at large between 1970 and 2009 using a Vector Error Correction (VEC) and Pairwise granger causality methodologies. The findings of the Vector Autoregression (VAR) model and pairwise estimate reveal no causality between human capital development and economic growth. The study recommends the need to increase budgetary allocation to the education and health sector and the establishment of sound and well-functioning vocational institute needed to bring about the needed growth in human capital that can stimulate economic growth. Also, the study identified that labour mismatch is an issue that government needs to reckon with in order to accelerate and sustain economic growth. In this regard, policy-makers in conjunction with employers and individuals need to update information on the real labour market value of different qualifications, in order to help them navigate through the increasingly complex education system and make the optimal kinds of educational investment decisions needed to propel economic growth.

Oluwatobi and Ogunrinola (2011) examined the relationship between human capital development efforts of the Government and economic growth in Nigeria. They seek to find out the impact of government recurrent and capital expenditures on education and health in Nigeria and their effect on economic growth. The data used for the study are from secondary sources while the augmented Solow model was also adopted. The dependent variable in the model is the level of real output while the explanatory variables are government capital and recurrent expenditures on education and health, gross fixed capital formation and the labour force. The result shows that there exists a positive relationship between government recurrent expenditure on human capital development and the level of real output, while capital expenditure is negatively related to the level of real output.

Adelakun (2011) conducted a study on human capital development and economic growth using OLS technique. It evaluates human capital using the GDP as proxy for economic growth; total government expenditure on education and health, and the enrolment pattern of tertiary, secondary and primary schools as proxy for human capital. He concluded that there is a positive relationship between government expenditure on education and health as well as pattern of enrolment in primary, secondary, and tertiary institutions in enhancing economic growth in the long run.

Adawo (2011) examined the contributions of primary education, secondary education and tertiary education to economic growth in Nigeria using an econometric model. These variables were proxied by school enrolment at various levels. Other variables included physical capital formation, and health measured through total expenditure on health. In all primary school input, physical capital formation and health were found to contribute to growth. Secondary school input and tertiary institutions were found to dampen growth.

Isola and Alani (2012) examined the contribution of different measures of human capital development to economic growth in Nigeria. The study used data from Nigeria and adopted the growth account model which specifies the growth of GDP as a function of labour and capital. The model also included a measure of policy reforms. Based on the estimated regression and a descriptive statistical analysis of trends of government commitment to human capital development, the study found that though little commitment had been accorded health compared to education, empirical analysis showed that both education and health components of human capital development are crucial to economic growth in Nigeria.

Adelowokan (2012) examined the effect of education and health expenditures on economic growth in Nigeria between 1970 and 2010 using a static regression model. He also established the long-relationship between human capital spending and economic growth using the Engle-Granger two-step cointegration procedure. The study found that public investment and public consumption (in education and health) exerted positive influence on economic growth, while, private investment exerted negative effect on economic growth in Nigeria. Similarly, the study showed that there was long-run relationship between economic growth and expenditure on education and health in Nigeria.

Akbari, Moayedfar, and Jouzaryan, (2012) investigated the effect of human capital on the economic growth of Iran in the long run and the short run using the auto-regressive distribution lag model .The results obtained from the estimation of the model under study are indicative of positive and significant effect of human capital on the economic growth of Iran. Thus, it is hoped that the results obtained from this study can attract the attention of authorities to the development and improvement of the human capital of the country.

Onyeagu and Okeiyika (2013) investigated the interaction between foreign direct investment and human capital on growth in Nigeria and tried to ascertain the long run sustainability of Foreign Direct Investment (FDI-) induced growth process using error correction mechanism. They found that FDI in Nigeria, had a negatively significant relationship to growth in the long run, meaning that the contribution of FDI in Nigeria is small and human capital had negative significant effects on growth in the long-run. The study claimed that this was due to shortage of skilled labour in the country. Linda (2013) investigated the common opinion on the positive relationship between human capital development and economic growth using simple production function to estimate the human capital impact on labour productivity. The study proxied human capital with average years of schooling from 2000 – 2010 and human capital stock and found that female human capital has positive impact on labour productivity during the period 2000 – 2010.

Eric (2013) focused on human capital as a driver of economic growth for developing countries. He argued that this has led to undue attention on school attainment. Developing countries have made considerable progress in closing the gap with developed countries in terms of school attainment, but recent research has underscored the importance of cognitive skills for economic growth. He claimed that attention has been shifted to issues of school quality and, in that area developing countries have been much less successful in closing the gaps with developed countries. Without improving school quality, developing countries will find it difficult to improve their long run economic performance.

Mba, Mba, Ogbuabor and Ikpegbu (2013) examined the relevance of human capital development on the growth of the economy using the ordinary least squares (OLS) technique. In the study, the GDP was used as a proxy for economic growth; Per Capita Real Gross Domestic Product, primary school enrolment, public expenditure on education and health, life expectancy and stock of physical capital as proxy for human capital. The study found that there was a strong positive relationship between human capital development and economic growth.