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.
GDPt = ƒ(ED)tα0
+ƒ(HE)tα1 + ƒ(DF)tα2 +..……(1) Where
GDPt = Gross Domestic Product, Edt is Education Expenditure,
Het is Health Expenditure and DFt is Defence Expenditure.
Taking the natural logarithm of both sides, equation
1 is redefined as:
Ln GDPt = α0+
α1 Ln ED + α2 Ln HE+ α3LnDF
+ Ut …….(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:
LnGDPt = 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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