HUMAN CAPITAL INVESTMENT AS A DETERMINANT OF SUSTAINABLE ECONOMIC GROWTH IN NIGERIA Fashina, Oluwatoyin Abiola

International Journal of Social Sciences and Humanities Innovations, Volume 7, Number 2, 2016

ISSN: 2856-2111

HUMAN CAPITAL INVESTMENT AS A DETERMINANT OF SUSTAINABLE

ECONOMIC GROWTH IN NIGERIA

Fashina, Oluwatoyin Abiola

                       Department of Business Adminatration and Management

Rufus Giwa Polytechnic, Owo ,Ondo State, Nigeria

ABSTRACT

The study examines human capital investment as a determinant of sustainable economic growth in Nigeria, and assesses the impact it has on the growth of the Nigeria economy. The data employed were drawn from secondary sources namely time series data as published by CBN statistical Bulletin of various issues, the yearly allocation of human capital (Health & Education) during the period under review were analysed. The study reveals that there is a

casual relationship between investing in human capital and sustainable economic growth of the country in the period under review. However, for any sustainable growth to occur in a country, government should increase is budgetary allocations in human capital development and ensure proper evaluation, implementation and monitoring of expenditure is disbursed in both education and health sectors.

Keywords: Capital Formation, Economic Growth, Government Expenditure, Durable Growth, Labour Force.

INTRODUCTION

     In recent times, the debate on investing in human capital, has come to limelight as a result of people’s quest for education and health care. The role education and health play in the development of individual citizens and the nation as a whole, has for long, been appreciated by individuals, voluntary agencies, organized groups and the government at various levels starting from the precolonial era to the present. Education empowers citizens mentally and physically and also provides for the state the required human capital for its growth; politically, socially and economically (Adedeji, 2001)     

          The benefits accruable from education have been the motivating factor behind the actions of the early missionaries and voluntary organizations who established the early modern education institutions in the country and those individual Nigerians, who sought for higher education outside the shore of this nation prior the establishment of such levels of educational institutions in the country. Consequently, many health programmes rely on basic skills from such educational schools being sought after, and reports have shown that improvement in productivity efficiency raises the return on a lifesaving investment in health.

          Over the years, in Nigeria, there had been various health and educational problems as a result of inadequate funding of education and health services. The current education and health status shows that a large proportion of the labour forces is not too well prepared to contribute to sustainable economic growth. The goal of the government towards health and education is not directed towards measurable variables in the indices of sustainable development. For example if the health sector had been properly funded, there ought to be a measurable impact in the level of the heath care delivery system in the country. The clinics will not be mere consulting outlets where thousands of Nigerians still die from major diseases such as malaria, HIV/AIDS and maternal/infant deaths etc. Similarly the science and technology driven development are still in their infancy. We rely heavily on importation of goods and services and there is no value added to the raw materials before export that will generate revenue which will boost better standard of living for all even though there are politics on health and Education which advocate better Health and Education for all by the year 2020. The world is talking about globalization, international property rights and information technology, and these are only be achieved through sound education and good health care of the citizen. Since health and educational status affects the individual’s participation in economic activities and consequently the level of the labour force in an

Human Capital Investment as a Determinant of Sustainable Economic Growth in Nigeria

economy, the study therefore tends to ask questions why the expenditure on education and health has not contributed to the GDP of the Nation, The study also intends to know if there is any relationship between Human Capital and Sustainable Growth in Nigeria?, and what effort is the Government making at developing the country’s Human Resources? etc. Hence, a re-examination of the level of investment in human capital and sustainable growth is imperative, and this re-examination is the principal focus of this study.

OBJECTIVES OF THE STUDY

          The overall objective of this study is to examine the impact of human capital investment on sustainable economic growth in Nigeria for the period between 1983 and 2013. Specifically other objective is to:

     ü  assess the impact of human capital investment on sustainable economic growth

METHODOLOGY

Study area

   Towards examining Human Capital Investment as a determinant of Sustainable Economic Growth in Nigeria, the Augmented Solow Growth Model (mankiw et al (1992) Caselli et al (1996) is adopted and log-linear regression is carried out on the model.

GDP_t = ƒ(ED)_t^α0 +ƒ(HE)_t^α1 + ƒ(DF)_t^α2 +..……(1) Where GDP_t = Gross Domestic Product, Ed_t is Education Expenditure, He_t is Health Expenditure and DF_t is Defence Expenditure.  

Taking the natural logarithm of both sides, equation 1 is redefined as:

Ln GDP_t = ^α₀+ ^α₁ Ln ED + ^α₂ Ln HE+ ^α₃LnDF + U_t …….(2)  

However, the above equation (i.e. equation 2) being a static equation, do not provide any insight into the behaviour agents out of equilibrium. Thus the appropriate specification of the relationship between the long-run theory and short run dynamics within the context of Co-integration and error correction has led to important revision in the modeling of macroeconomic relationships and hence, dominated the most of the time series economic researches in recent years (Adebiyi, 2002).

 In view of this, the attempt to capture the short-run dynamic properties of the model, has necessitated the inclusion of the error correction factor/mechanism (ECM). Thus the model is modified as follows:

LnGDP_t = ^α₀+ ^α₁LnED+ ^α₂LnHE+ ^α₃LnDF+ ECM + Ut ……. (3)

  Therefore, equation 3 of the model will be the equation to be estimated. It should be noted that all other variables in the equation are to provide an enabling environment for education (i.e. The major argument variable).

A Prior Expectation

 It is excepted that

∂GDP/∂HE>0, ∂GDP/∂ED>0, ∂GDP/∂DF>0,

 The scope covers the period between 1983-2013 and the period is chosen because during this period the major objective of the government was the promotion of development and stability. This is seen in the Strucutural Adjustment Programme of the government, the deregulation exercise etc. This means the attainment of a steady growth of the National Income and Price Stability which are indicators for achieving sustainable economic growth.

SOURCES OF DATA

     Data employed in this study were secondary data from Central Bank of Nigeria statistical Bulletin of various issues from which government yearly budgetary allocations to Education, Health and Defence for the period under review were obtained.

LITERATURE REVIEW

    The concept of human capital refers to the abilities and skills of human resources of a country (Adamu; 2002), 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 crucial for the

International Journal of Social Sciences and Humanities Innovations, Volume 7, Number 2, 2016

economic growth and political development of a country (Okojie, 1995). Human capital formation, Okojie concludes, is thus associated with investing in man and his development as a creative and productive process.

          Effective investment in human capital is a key component of long term economic growth and increased productivity. (Adenuga;1998). A well educated population is an objective in itself as well as the conduct to accelerated social and economic development. According to the 1998 African Development Bank Report (ADB), human capital development can be described as an essential means for sustained economic growth and poverty reduction and also as an end in itself. World Bank’s (1995) assessment for 192 countries indicates that human capital, on average, accounts for 64 percent of the total wealth while physical and natural capital account for 16 and 20 percent respectively.

          Of all the contributory factors to economic development, human resources stand out as the major factor that determines the manner in which all other factors should be combined and spur the development process (Ojo, 1996).The United Nations Development Programme (UNDP; 1997), supports this view, arguing that development should focus on human development that should be seen in the light of how economic growth is managed and distributed for the benefit of the people.

          Economic Growth is an important objective of economic policy particularly in Nigeria because it is the key to improved standards of living. It brings an increasing revenue which means more and better schools, hospitals, and other social services. Economic growth has been defined as the process whereby the real per capita income of a country increases over a period of time (Meier, 1984; Obadan, 1996). Durable growth (Obadan,1996) requires sustainable policies- ones that do not give rise to accelerating inflation for its attainment, and that a sound fiscal policy creates a hospitable climate for private and public investments and thus promote productivity. There can be no significant economic growth in any country without adequate human and natural resources. In essence, human capital formation is fundamental to a nation’s socio-economic progress and seeks to improve the quality of life, which is the ultimate goal of economic development and growth. In support of this view, Ojo (1996), argues that improved human beings will not complain about their education, health, food, housing and security among other things, therefore the improved human beings are better producers who contribute positively to economic growth and its sustainability.

PRESENTATION OF RESULTS

TABLE 1: PHILIPS PERRON STATIONARITY TEST RESULT

Variable	Pp test statistic	Critical Value	Order of intergration	Level of significance
GDP	-50%
LNGDP	-5.076065	-3.6852	1 (1)	1%
LNEDU	-7.089085	-3.6852	1 (1)	1%
LNDEF	-4.913447	-3.6852	1(0)	1%
LN HEALTH	-5.097305	-3.6852	1(1)	1%

Source: Author’s computation based on E-View software, 2012.

Co-integration test

(Eagle and Granger Approach)

          As posited by Obaseki (1998), co-integration techniques arose from the need to integrate short-run dynamics with long-run equilibrium through the inclusion of an Error Correction Mechanism (ECM) in the dynamic formulation of the model estimation. Furthermore, co-integration analysis helps explore the long-run relationship status of the variables included in the estimated models. In respect of this, Eken et al, (1995) explained that the integration series will have linear combination that will converge to stationary long-run equilibrium relationship. The result of the co-integration test is presented in table 2.

Human Capital Investment as a Determinant of Sustainable Economic Growth in Nigeria

Table 2:Co-intergration Test Result

Variable	Pp test statistics	Critical value	Order of integration	Level of significance
ECM	-4.117103	-3.6959	1 (0)	1%

Source: Author’s computation based on E-View Software, 2012.

Table 3: DEPENDENT CONSTANT LN HEALTH LN EDU LNDEF ECM VARIABLE.

		2	1	3	4
Dependent variable	Const.	LN Health	LN EDU	LN DEF	ECM	R2	R-2	PR (Fstat)	D.W
LN GDP	2.755620	-1.148549	0.390669	1.885701	0.26526	0.84	0.81	0.0000	1.877185
	(1.109769)	(0.284276)	0.297525	0.372761
	(2.483057)	(-4.040255)	1.313060	5058740

  Source: Author’s computation based on E-View Software, 2012.

Values paranthesis  (0) are t- statistics values

Value paremthesis (   )   are standard error values

* =) 1% significance level

** =) 5% significance level

*** =) None significance level

RESULTS AND DISCUSSION

     The results of the estimated equation show that all parameters of the model except health expenditure impinge positive impact on GDP. It should be noted that expenditures on defence, and health included are to provide an enabling environment for the major argument variable; expenditure on Education in the equation is a priori expected to be growth improving. This is premised on the fact that education is the process of developing the congnitive, effective and psychomotor faculties of the people in order to equip them with knowledge and skill necessary to survive and make progress in the society (Ethusani, 2002). This shows that the result of the coefficient of education in the estimated equation signed-in with the positive theoretical underpinning. The result shows that a unit change (increase) in the investment in education would generate about 0.39 unit change (increase) in GDP of the nation. The result, however, is statistically insignificant. This could find expression in:

i]        The Piracy Argument: that is, the newly created educational capital has gone into piracy; such that it becomes privately remunerative but socially unproductive activities.

ii]       Retarded growth in the demand for educated labour so that the supply of educational capital has outstripped demand and returns to schooling.

iii]       Failure of the education system in which a year of schooling provides few (or no) skills. This results in production of misfits and incompetent workers.

iv]   Another reason is the job Mismatches, in which qualified doctors or an engineer may be employed as a school teacher in their quest for survival.

v]       The precarious ‘brain drain’ syndrome, just to mention a few.

          All these factors are capable of neutralizing the impact of investment in education on the economic growth of a nation and render it insignificant. However, this result corroborate the works of Hicks, (1980), Weeds (1983), Barro (1991), Ojo and Oshikoya (1995), Grammy and Assane (1996), Tsauni (2004) and Fashina (2006), just to mention a few.

          Furthermore, the theory supports that expenditure on health facilities and services would improve the life expectancy, strength and stamina, and the vitality of the people, which are all key factors of growth. The result of this work shows a negative relationship between total health expenditure and GDP. It reveals that a unit increase in health expenditure will cause about -1.14 decrease in GDP. The reason for this is not difficult to explain it could be explained given the following:

International Journal of Social Sciences and Humanities Innovations, Volume 7, Number 2, 2016

i}        The administrative fraught in the system especially in the process of channeling the fund to the appropriate areas of need. This is what people termed as the “Nigeria factor” which could be captured under the auspice of corruption.

ii}       The attitude of some health personnel in the course of delivering and discharging their services are questionable, unjustifiable and growth-neutralising.

iii}      The incessant strikes of health workers in the recent times and the brain drain in the sector are growth-killing. However, this result is similar to that of Cheter and Adenikinju (1996), Tsauni (2004) and Fashina (2006).

The findings also show that government expenditure on defence is positively related to GDP. It shows that a unit increase in investment expenditure on defence and security will produce about 1.89 unit increases in GDP, and the effect is statistically significant at 1% level.

The short-run dynamics of the model can be captured to the tune of about 26.5% as shown by the ECM coefficient, though not significant. Furthermore, the R² of the equation with the value of 0.84 explains that the independent variables of the model have 84% explanatory power in the total variation of the GDP. This is justified by the R^-2 of the value of 0.81 (81%) the E-value of 30.4 is significant at 1% levels as revealed by the F-stat (prob) of 0.0005. This further suggest a strong linear relationship between the regressors and the regress and. The D.W statistics of 1.88 rules out auto-correlation.

RECOMMENDATION

     The result of the findings has revealed that all macroeconomic/social indicators (i.e.  growth of the (GDP, etc.) point to the fact that the economy is still on the path of sustained growth and development. Based on the findings, the study recommends as follows:

*        For any sustainable development to occur in the country, government should increase its budgetary allocations in human capital development and ensure proper evaluation, implementation and monitoring of expenditure disbursed in both Health and Education sectors. And not only that, effort should be made by the government to maintain a steady increase in the yearly budgetary allocation that will develop the human resources. 

*        The development of a broad-based basic health and Education is a prerequisite for sustained and equitable growth, therefore government should increase the level of spending on social services, and the public resources usage should be efficient. Government should concentrate more on financing health and education rather than servicing our external debt because the release of funds from debt service to health and education, through debt relief, will go a long way to develop the country’s human resources.

*        Government should ensure rapid progress in quality education and the delivery of effectual health care system as a means of human capital formation. Good education and health policies should formulated and properly monitored and sustained. Major diseases should be seen as an emergency development challenges and should be tackled with all seriousness. In addition, concrete efforts should be made to reduce significantly the pace of brain drain form the country, through good government and employment security.

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