INVESTMENT IN HUMAN CAPITAL AND ECONOMIC GROWTH IN

NIGERIA

BY

ADEWOLE BUKOLA

NOU154459431

A PROJECT WORK SUBMITTED TO THE DEPARTMENT OF ECONOMICS,

FACULTY OF SOCIAL SCIENCE, NATIONAL OPEN UNIVERSITY OF

NIGERIA, ABUJA, IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR

THE AWARD OF BACHELOR OF SCIENCE (B.Sc) DEGREE IN ECONOMICS

APRIL, 2022
 DECLARATION

I ADEWOLE BUKOLA with matric No: NOU154459431 do humbly declare that this

research work entitled INVESTMENT IN HUMAN CAPITAL AND

ECONOMIC GROWTH IN NIGERIA is as a result of findings from my research

efforts, carried in the Faculty of Social Sciences, National Open University of Nigeria. It

was carried out under the supervision of Dr. Olanipekun Dayo. I further declare that, to the

best of my knowledge, this work contains no material previously published by another

person or group except where due acknowledgment has been made in the text and stands

subject to plagiarism scrutiny.

………..………………………………..
Signature/Name/Date

ii
 CERTIFICATION

This is to certify that this research project entitled INVESTMENT IN HUMAN

CAPITAL AND ECONOMIC GROWTH IN NIGERIA was carried out by

ADEWOLE BUKOLA with matric No: NOU154459431 in the faculty of Social Sciences,

National Open University of Nigeria, Abuja, Nigeria for the award of Bachelor degree in

Economics.

……………..………………….. ……………………….....
DR. OLANIPEKUN DAYO Date
(Supervisor)

iii
 DEDICATION

This research work is dedicated to Almighty God, the author and owner of my life.

iv
 ACKNOWLEDGEMENTS

Praise to the Lord the Almighty and giver of all understandings and knowledge. My

most special appreciation and thanks goes to the Almighty God, my guidance, protector and

provider, the author and the finisher of my faith, who in His grace and mercies see me

through the completion of this programme, may His name be praised forever. He began a

good thing in me and was able to complete it. All glory and adoration to him alone

My sincere and profound gratitude also goes to my supervisor Dr. Olanipekun Dayo

for painstakingly reading through this work; for his positive inputs and corrections made on

this project. May the good Lord continue to lift you up and move you from glory to glory in

Jesus name. Thank you sir.

My gratitude also goes to the Centre Director, Professor. J.A. Sokefun and my

Faculty Officer, Mrs. Titilayo Samuel the entire staff of National Open University, Ibadan

Study Centre.

My gratitude also goes to my uncle, Adewole Adeyinka for his support. May the Almighty

God increase and bless you.

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 ABSTRACT

This study examined investment in human capital and economic growth in Nigeria. The
broad objective of the study is to analyze the impact of human capital investment on the
growth of Nigeria. Specifically the study investigated the impact of government expenditure
on education on the economic growth of Nigeria; impact of expenditure on health on the
economic growth of Nigeria; long run relationship between human capita and economic
growth. Data were extracted from Central Bank of Nigeria statistical bulletin and World
Bank index for the period 1999-2019. Analysis was conducted with descriptive statistics of
all the variables included in the study, the correlation analysis, ADF unit root test, bound
test co-integration approach, ARDL short run and long run estimation with post estimation.
Result indicated that human capital has negative insignificant effect on real gross domestic
product on the short run but positive significant on the long run. Result also showed that
total expenditure on health and total expenditure on education exert negative significant
effect on gross domestic product on the short run and long run. Therefore, this study
concluded that investment in human capital has negative significant effect on economic
growth of Nigeria. The implication is that effort of the government in improving human
capital through investment in health and education will remarkably influence the growth of
the economic sectors. Hence, it was recommended among others that government should
ensure efficient and effective utilization of government expenditure on health and education
in order to increase economic growth in the long run.

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 TABLE OF CONTENTS

Title Page .i

Declaration ii

Certification iii

Dedication iv

Acknowledgement v

Abstract vi

Table of Contents vii

List of Tables x

CHAPTER ONE: INTRODUCTION

1.1 Introduction 1

1.2 Statement of the Problem 4

1.3 Research Questions 6

1.4 Objectives of the Study 6

1.5 Hypotheses of the Study 6

1.6 Significance of the Study 6

1.7 Scope of the Study 7

1.8 Organization of the Study 7

CHAPTER TWO: LITERATURE REVIEW

2.1 Conceptual Review 8

2.1.1 Human Capital Development 8

2.1.2 Human Capital Development in Nigeria 9

2.1.3 Education as an Index of Human Capital Investment in Nigeria 11

2.1.4 Healthcare and Human Capital Development in Nigeria 13

2.1.5 Human Capital Investment and Economic Growth 14

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2.2. Theoretical Review 16

2.2.1 Human Capita Theory 16

2.2.2 The Harrod-Domar Theory of Growth 17

2.2.3 The Neo-Classical Growth Model (Solow Growth Model) 18

2.2.4 The Modernization Theory 20

2.3 Empirical Review 21

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Preamble 34

3.2 Theoretical framework: Romers’ Endogenous Growth Theory 27

3.3 Model Specification 27

3.4 A-priori Expectation 28

3.5 Definition and Description of Variables 29

3.6 Method of Data Analysis 29

3.7 Evaluation of the Study 30

3.8 Sources of Data 31

CHAPTER FOUR: RESULTS AND DISCUSION

4.1 Descriptive Analysis 32

4.2 Correlation Analysis 33

4.3 Unit Root Test 34

4.4 Analysis of the effect of environmental pollution on health status in Nigeria 35

4.5 Discussion 38

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary 40

5.2 Conclusion 41

5.3 Recommendations 42

viii
Reference 43

ix
 LIST OF TABLES

Pages

Table 4.1: Descriptive Statistics 32

Table 4.2: Correlation Matrix 33

Table 4.3: Summary of Unit Root Test Result 35

Table 4.4: ARDL Co-integration Bound Test 35

Table 4.5: ARDL cointegration and Long run form Estimation Result 36

Table 4.6: Post Estimation Test 37

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 CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Countries all over the word are in search for the means of attaining a well sustainable

economic development. However, the economic development is mostly achieved through

adequate management of human and natural resources. In a bid to promote economic

growth, countries try as much as possible to develop their labor, in terms of improving

educational and health conditions (Fadiya. (2010). Human capital investment is a means

through which labor force or the population that is willing and able to work acquires skills

and knowledge required for the transformation of the country and bringing about economic

development. It is believed that when people are well trained and educated, the tendency

towards innovation and creativity increases, which in turn improves the overall effectiveness

as well as performance, and strengthens the entrepreneurial activity in the country (Fadiya,

2010). When there is an increase in entrepreneurship, there will be an increase in goods and

services produced as well as employment opportunities. Countries such as Japan, Great

Britain, France, the United States of America, and China invest a lot in human capital, and

they have done this for years. This is why they remain developed to date (Fadiya, 2010).

It has been stressed that the differences in the level of socio-economic development across

nations is attributed not so much to natural resources and endowments and the stock of

physical capital but to the quality and quantity of human resources. According to Oladeji

and Adebayo (2006), human resources are a critical variable in the growth process and

worthy of development. They are not only means but, more importantly, the ends that must

be served to achieve economic progress. Capital and natural resources are passive factors of

production; human beings are the active agents who accumulate capital, exploit natural

1
resources, build social, economic, and political organizations, and carry forward national

development. Clearly a country which is unable to develop the skills and knowledge of its

people and to utilize them effectively in the national economy will be unable to develop

anything else”.

The British government sends its citizens abroad in order for them to obtain additional

working skills they could have not otherwise acquire in their country. This helps them to

gain knowledge and put the new expertise to use in their country. This has gone a long way

in driving innovation as well as technological advancements that have led to the

enhancement of production of a variety of goods and services. Similarly, the citizens of

Japan were sent in the past to other countries to acquire knowledge. This also led to the

economic development of Japan. China is leading the leading force in today’s world in

terms of technological advancement, due to the level of their human capital (Riman, 2012).

China focuses more and more of its efforts on training and development employees, with the

notion that the trained labor will bring about development and sustainability, which is the

product of training and knowledge. For this reason, the under-developed countries like

Nigeria must look up to the best practices utilized by foreign states, in order to learn how to

engage in proper human capital education. Since the adequate use of human force is the

fastest means of coming out of the poor living situation, those trained for certain positions

with accentuated professional skills will yield innovative behavior and raise the level of

country’s development.

Investment in the human resources involves, the cost incurred during the process of

acquiring and increasing the number of persons who possess the dexterity and skills,

education and relevant expenses which are critical for economic and political development

of the country (Jhingan, 2000, 2002, Meier and Rauch, 2000). Human resources

development therefore relied in investment in man and his development as a creative and

2
productive resource (Todaro & Smith, 2003). Education is a form of saving that creates

accumulation of human capital and growth of aggregate output if human capital is

considered as an input in the aggregate production function (Meier and Rauch, 2000). In a

more disaggregated perspective, greater educational attainment helps a country to move up

the ladder from production and export of less to mere skill and capital intensive goods

(Jhingan 2002, Meier and Rauch, 2000). Indeed, a more educated work force is also better

able to attract and absorb foreign technology relevant to transform its production process.

For Nigeria where growth is paramount for a high scaling and great movement out of

poverty, education and health are particularly important. For several decades, development

agencies have paid great emphasis on primary and more recently, secondary education. But

they have neglected education as a means to improve economic growth and mitigate poverty

Erhuwua (2007) . The Dakar Summit on “Education for All” in 2000, for example,

advocated only for primary education as a driver of broad social welfare. It left tertiary

education on the side. The inattention to higher education within the developmental

initiatives lies partially in the shortage of empirical evidence that it may affect economic

growth and incite poverty reduction. After the World War II, several economists, including

Milton Friedman, Gary Becker, and Jacob Mincer, developed the human capital theory to

examine the benefits of education for individuals and the society as a whole. Friedman and

his wife Rose originally suggested that there was no evidence that higher education yields

social benefits over and above the benefits that accrue to the students themselves. On the

contrary, they hypothesized ‘that higher education may promote social unrest and political

‘instability. In contrast to the earlier premises, recent evidence suggests higher education is

a determinant of income and can produce public and private benefits. Higher education may

generate greater tax revenue, increase savings and investment, and stimulate entrepreneurial

activity in society Ojukwu (2000). It can also improve a nation’s health, contribute to

3
reduced population growth, improve technology, and strengthen governance. As the

example of higher education influencing country’s economy, in India, it contributed to the

presence in the world‘s economic stage, as stemming from its decades-long successful

efforts to provide high-quality, technically oriented tertiary education to a significant

number of its citizens (Ubuorn, 2006).

1.2 Statement of the Problem

Despite the tremendous progress in expanding enrolment and increasing years of schooling

since 1960, Nigeria is yet to benefit from such development in terms of increased growth.

Schooling in Nigeria has not delivered fully on its promise to drive economic success. The

expansion of school attainment, at the center of most development strategies, has not yet

guaranteed better economic conditions (Fadiya, 2010). Scholars attributed the failure of

Nigeria’s educational system to promote economic growth to the poor state of the system.

Adeoye, 2002; Babatunde and Adefabi 2005) According to Babatunde and Adetabi (2005),

the education that most Nigerians receive is not very good. Children attend primary schools

for six years, but the education they receive is not sufficient. The pupils to teachers ratio

were 37 to 1, and the youth literacy rate was 13% for males and 20% for females up to the

late 1990s. In 2002, 33% of the relevant age group attended secondary school and only 4%

attended tertiary schools. The low number of students in tertiary school can be easily

explained by the fact that spending per student in tertiary schools is 529.8% of the GNP.

Furthermore, public spending on education was only 0.9% of the GNP in 2002 (World

Bank, 2004).

Health comes next to education in the development of human resources. According to

Yesufu (2000), good health policy is a means by which government can at once ensure that

manpower is generated in the right mix distributed in accordance with national priorities and

4
ensure the highest level of labor productivity. Health improvement influences mobility and

labor force productivity, thereby enhancing the process and speeding up economic

development. Most developing countries have paid serious attention to the provision of

public health, education, and social welfare services. It is believed that such measures could

improve the quality of life of their people and their efficiency as productive agents, thereby

accelerating the general socio-economic development of their nation. Since health and

education, status affects the individual participation in economic activities, and

consequently, the level of the labor force in an economy, a re-examination of the level of

investment in human capital and sustainable growth is imperative. According to the

literature, the investments in health and education sectors should improve the productivity

of an economy.

The financing of human capital investment in Nigeria has often been described as

inadequate, with budgetary allocations to these sectors (especially health and education)

hardly exceeding, on average 4% of the nation’s total budgetary provisions (Orubuloye and

Oni, 1996; Riman and Apkan, 2012). For instance, education and health care spending, in

Nigeria is segmented into private and public spending. While public health expenditures in

Nigeria account for just 20-30% of total health expenditures, private expenditures on health

account for 70-80% of total health expenditure. It is expected that budgetary allocations to

the health sector would improve health and reduce the overall mortality rate. These findings

provide one possible explanation of why public spending often does not yield the expected

improvement in human capital development.

Many scholars such as Yesufu, (2000), Riman and Akpan 92012) Orubuloye and Oni

(1996), Fadiya, (2010), Johnson, (2008) Ozun, (2015), carried out studies on human capital

development. The motivation for this study was born out of the cognizance that Nigeria has

largely neglected human capital formation and there still exists a gap in the literature on the

5
impact of higher education, health care service as well as entrepreneurship development in

the economy. Hence the need for further research highlighting the significance of investing

resources in education, health care service which are observed to bring about growth and

innovation to the country.

1.3 Research Questions

(i) What is the trend of human capital and economic growth in Nigeria?

(ii) What is the impact of government expenditure on education and health on the

economic growth of Nigeria?

(iii) What is the long run relationship between human capita and economic growth of

Nigeria?

1.4 Objectives of the study

The broad objective of the study is to examine the impact of human capital investment on

the growth of Nigeria. Specific objectives of the study are;

(i) Analyze the trend of human capital and economic growth in Nigeria

(ii) Examine the impact of expenditure on education and expenditure on health on

economic growth of Nigeria

(iii) Analyze the long run relationship between human capital and economic growth of

Nigeria

1.5 Hypotheses of the Study

Ho1: Human capital investment has no significant impact on the economic growth of Nigeria

Ho2: human capital does not have any significant long run relationship with economic

growth.

1.6 Significance of the Study

6
The significance of this study is study is prompted by the slow rate of the Nigerian

economic growth despite the huge amount of contribution of the government. Studies on

this focus being carried out over the years have not really achieved its prior objective. The

effect of human capital investment on economic growth holds a lot of benefits to the overall

economic progress. The government and its agencies will find this study resourceful in

formatting policy, directives and regulations for human capital investment to aid economic

growth. This study will be fundamental in identifying the manpower requirement and needs

of the country. onn the same vein, this study is relevant in identifying the extent to which

high level of manpower has been developed and utilized in Nigeria as well as contributes to

its economic transformation. This study will serve as a references source for other

researchers and for policy consideration in view of political economy inherent in the dialects

data availed.

1.7 Scope of the Study

The study focused on the impact of investment in human capital development on the

economic growth of Nigeria. However, the scope of the study sprang from 1990-2019.

Some of the general characteristics of human resource development would be highlighted

which would include expenditure on education, expenditure on health care service as well as

entrepreneurship development.

1.8 Organization of the Study

The study was organized into five different chapters. The first chapter covers the

introduction, statement of problem, research questions, objectives of the study, hypothesis

of the study, scope and significant of the study. Chapter two concentrates on the literature

review such as conceptual, theoretical, and empirical literatures. The third chapter comprise

of the methodology used in the study, followed by presentation of result and discussion in

7
the forth chapter. The fifth chapter presents the summary, recommendations and conclusions

of the study.

CHAPTER TWO

LITERATURE REVIEW

2.1 Conceptual Review

2.1.1 Human Capital Development

There is no universal definition for the concept of human capital development. However,

several studies have attempted to give different definitions for the concept of Human capital

development. Human capital as concept refers to the know-how, capabilities, skills and

expertise of the members of an organization (Dzinowski, 2000). Nobel Prize winner for

economics, Simon Smith Kuznets pioneered the debate about human capital in the 1960s,

concentrating on human capital largely in terms of investments, on-the-job training and

education. Human capital has been recognized globally as one major factor that is

responsible for the wealth of nations. According to Smith (1776) and Folloni and Vittadini

(2010), human capital refers to the acquired useful abilities of all the inhabitants or members

of the society. 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;

8
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).

The notion of the investment in human capital development is of recent origin Jhingan

(2005) points out that in the process of economic growth it is customary to attach more

importance to the accumulation of physical capital than human capital. The new endogenous

growth theories are thus significant in the introduction of the active role of human capital in

the growth of economics. Human capital is the term economists use education, health care,

and other human capacities that can raise productivity when increased (Todaro and Smith

2003). 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 as 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 produce in the societies. While high income may be

conductive 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. Nigeria, which was one of the richest 50

countries in the early 1970s has retrogressed to become one of the 25 poorest counties at

threshold of the twenty-first century. The belief in human capital as a necessity for growth

started in Nigeria during the implementation of the 1955-60 development plan and today,

with the importance of knowledge in the economy, human capital has increasingly attracted

both academic and public interest.

2.1.2 Human Capital Development in Nigeria

9
The importance of investing in human capacities is well appreciated and understood in

economies that intend to attain sustainable growth. The quality of nation’s development is

dependent on the quality of its workforce. Nigeria is rated by international standards as ‘less

developed’ and thus has economic growth as a major goal. Indeed, the importance of a

prime sector such as education has been stressed in Nigeria since the early sixties following

the submission of the Ashby report in September 1960. In recent times, during a keynote

address by the former governor of the Central Bank - Dr J.O Sanusi (2002), he stressed the

importance of human capital development for Nigeria, saying that the Nigerian economy

has to be efficient and competitive in the new world order in which national frontiers no

longer constitute barriers to human, material, and capital flows. He noted that one of the

greatest barriers facing Nigeria in this millennium is the issue of capacity building to

enhance productivity in the economy.

The Nigerian government as explained by Ogujiuba and Adeniyi (2005) primarily controls

education. They summarize the breakdown of this control from the federal to the state and

the local government level. In Nigeria, the federal government is primarily responsible for

the tertiary institutions although some states and private individuals also fund and run this

level of education. Secondary education is mainly a state responsibility although there are

some federal secondary schools. Primary education is a local government responsibility but

there also exists a National Primary Education Commission (NPEC) that draws up the

curricular for corporate bodies, individuals, religious organizations, international agencies,

nongovernmental agencies and community based organizations with the three tiers of

government. Importance of higher education in national development in Nigeria is reflected

in for tertiary education as enunciated in the National Policy on education (NPE 1988),

However, despite the importance of educational institutions, Nigeria spends an almost

insignificant part of her financial resources on education. Aigbokhan, Imahen & Ailemen

10
(2007) note that a cursory look at the magnitude and trend of increases in allocation might

be misleading in passing judgment on the budgetary performance until they are placed side

by side with their percentage allocations. The characteristic pattern of the government’s

allocation to education and health in Nigeria as a percentage of the total budget revealed

inconsistency. That is, health and education expenditure were not considered as policy

targets in the overall budgeting, or else, they would have maintained an increasing

proportion of the yearly budget of the nation. Since the late seventies, budgetary allocations

to education have not matched the increasing need for qualitative education for young

Nigerians to be globally competitive. Research grants are administered discretionarily

instead of systematically, when they are available.

This low priority in budgetary allocation to education by the Nigerian government vis-à-vis

countries like Ivory Coast, Ghana, Kenya, South Africa and Zimbabwe has caused the

problem of brain drain from the universities and lack of motivation for lectureship post

among students. Africa as a whole has the resources and market for industrialization but the

poor managerial capacity and weak technological institutions constitute major constraints

(Oni, 2010). In a country where the education and training systems are not geared to the

development of national capability more productive technology cannot be employed. The

implication of this is that human resources development institutions must be strengthened to

develop the needed capacity for African development. Such a policy should also incorporate

a strategy for technological capacity building (TCB) as a continuous social process. To

develop this capability a nation therefore needs to have the appropriate policy, build the

necessary institutions and structures which must be sustainable.

2.1.3 Education as an Index of Human Capital Investment in Nigeria

Education is perceived as a significant factor that affects every individual of a country. The

agreement has been that there is a high relationship between rise in education and economic

11
growth. The report of Ashby Commission supported this assertion and in fact favored the

expansion of the educational sector. The old 6-5-2-4 inherited from the colonial masters was

replaced by the 6-3-3-4 education system in 1987. This means that pupils will spend six

years to get primary education, six years in secondary school (three years of junior

secondary and three years of senior secondary education) and four years of higher

education.

In Nigeria, the Federal government is principally responsible for the tertiary institutions.

However, several states also fund this level of education. Indeed, with the approval of the

eight new universities, the number of the nation’s private universities has risen to 20 and

they will be funded by private individuals. Secondary education is mainly a state

responsibility though there are some federal secondary schools. Primary education is a local

government responsibility, but there exist also a National Primary Education Commission

(NPEC) that draws up the curricula for the schools in this category. There has also been

collaboration by corporate bodies, individuals, religious organizations, international

agencies, non-governmental organizations (NGOs) and community-based organizations

(CBOs) with the three tiers of government.

According to Ogujiuba & Adeniyi, (2005), the 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. When compared to the United Nations stipulated

minimum of 25 it is seen that Nigeria has not performed well.

The low educational enrolment and achievement of Nigeria is therefore a particular concern

because there is no strong evidence that the return to education especially for women Most

12
analyses of wages find no systematic gender difference in the effects of education. it is

evident that education is observed to exert higher returns on wage unemployment, so the

return on education especially to women is lower because of the Nigerian women’s lower

formal labour market participation. However, this is difficult to establish because it requires

a comparison with the non wage return education, some of which are are hard to qualify.

Indeed it may be that the non-wage returns are more likely sources of external benefits and

thus reasons for government support.

2.1.4 Healthcare and Human Capital Development in Nigeria

Health is a general state of physical, mental and emotional well-being. Health is a

fundamental human right and it is indispensable for the exercise of other human rights.

Every human being is entitled to the enjoyment of the highest attainable standard of health

conducive to living a life in dignity. The World Health Organization (WHO) and Article

24.1 of the Universal Declaration of Human Rights affirms that everyone has the right to a

standard of living adequate for the health of himself and of his family, including food,

clothing, housing, medical care and necessary social services. The global commitment on

health for all is encapsulated in goals 4,5 and 6 of the Millennium Development Goals

(MDGs). The health related Millennium Development Goals cannot be reached without

appropriate, adequate and significant improvements in human resources for health.

Incentives and other strategies target at individual in the area of human resource policies

such as safe working conditions and places, adequate compensation; continuous learning

opportunities and manageable work loads are necessary to be put into parches to retain high

quality and dedicated health workers. Izueke (2009) carefully pointed out that with

sufficient skilled and motivated health workers, infant mortality rate, maternal death rate,

HIV/AIDS and other diseases will be drastically reduced.

13
The World Health Organization Report (2000) reported that the Nigeria’s overall health

system performance was ranked 187th among the 191 member states. Health indicators

rather confirmed this assessment. Oloriegbe (2009) noted that Nigeria has one of the worst

human development indicators especially for women and children in sub-Sahara Africa and

indeed the rest of the world. He wrote that the country accounts for 10% of the world

material deaths from pregnancy and child birth related causes, but only represents 2% of the

population; close to 200 out of 1000 children born every year do not live to celebrate their

5th birthday. He equally pointed out that life expectancy for the average man and woman is

42 and 47 years respectively. These figures hide huge disparities with the Northern part of

the country accounting for the worst indicators.

In relation to industrial safety (section 17 (3c) “The State shall direct its policy towards

ensuring that the health, safety and welfare of all persons in employment are safeguarded

and not endangered or abused. There is no health objective in the Nigerian Health

Constitution. All the three levels of government in practice have the responsibility for the

provision of healthcare. The 36 states and the 774 Local Government are each responsible

for all financial aspects of Secondary Health Care, and Primary Health Care including

personnel costs, consumables, running cost and capital investments. The National Health

Care Development Agency was established to provide a source of technical knowledge and

expertise on the provision of Primary Health care and monitor PHC delivery on behalf of

the Federal Ministry of Health. Public Primary Health Care Services are funded by all tiers

but administered by local government areas with technical assistance and direction from the

State Ministries of Health. Secondary Health Services (SHC) are the responsibilities of the

State governments (and in some states) may be administered by a State Hospital

Management Board. However, Alm and Boex (2002) argued that the coordination and

14
activities between (and within) the three tiers of governments concerning health issues is

generally weak which is greatly affecting the growth of the country.

2.1.5 Human Capital Investment and Economic Growth

Growth is as a function of the ability of man to take charge of his environment and manage

progressively, everything in such environment, to increase his production and productivity

to enhance a qualitatively better life. In the quest to growth, the question remains that can

the economy be sustainable? Sustainable economic growth on the other hand is the

development that suffices the need of the present generation without compromising the

needs of the future generation (Wikipedia, 2007). Sustainable economic growth according

to Ascher and Healy (1990)

Eriyekit, Silas-Dikbo & Vinazor (2011) emphasizes encapsulates not the need of to limit

growth, but the need to in other to be able to conserve. It also extends more than what the

government of the day might think, but for continuous and concurrent ideologies that project

and enhance the betterment of the entire society. Sustainable economic growth therefore

calls adequate human capital investment. This involves investing in human capital to

strength the weakness of public policies, so as to promote common good of the society. The

same time, these efforts are expected not to harm or obstruct the ability of the further

generations to achieve their development needs.

Unfortunately, the reverse is the case in the trend in Nigeria environment as the political

leaders do not have vision and passion to encourage human capital. Morris (2002) had

asserted that most discussions (and actions) of sustainable development have to give due

attention to meeting the needs of the present and indeed of the future generations through

human capital development. The strides should be noticed in both educational and health,

thus sustainable economic growth cut across and transcend to all spheres of life. Sustainable

strategies allow drawing natural resources assets, and utilization of environmental services

15
through human knowledge and innovation which is the outcome of human capital

formation.

Sustainable development in human society is not a one-sided process rather multi- sided

issues; individuals perceive development as increase in the skill and ability, it is viewed as

maximum freedom, the ability to create responsibility. Seer (1977) in Enyekit (2017) states

that sustainable economic growth involves capital accumulation but the condition in which

people in a country have adequate food, job and income inequality among them is great. It is

the process of bringing fundamental and sustainable changes in the society with high level

of technical know-how. It encompasses growth and embraces the quality of life as social

justice, equality of opportunity for all citizens, equitable distribution of income and the

democratization of development processes. It is the capacity of members of the society to

actualize them by participating actively in the social engineering of their destiny. It entails

the ability of individuals to influence and manipulate the forces of nature for their

enhancement and that of humanity. Economic, political or social development implies more

changes in the technical and institutional arrangement by which it is produced. In spite of

various concepts, sustainable development is a multi-dimensional and is basically about the

process of changes around the spheres of societal life. However human capital investment is

the engine through which the development is carried out. This implies that labour

development is the bedrock of any nation.

2.2. Theoretical Review

2.2.1 Human Capita Theory

Human Capital theory as postulated by Paul Romer (1986) emphasizes how education

increases the productivity and efficiency of workers by increasing the level of their

cognitive skills. Schultz (1961), introduced the notion that people who invest in education

increase their stock of human capital. Examples of such investments include expenditure on

16
education, on the job training, health, and nutrition. Such expenditures increase future

productive capacity at the expense of current consumption. However, the stock of human

capital increases only in a period when gross investment exceeds depreciation with a

passage of time, with intense use or lack of use. The provision of education is seen as

productive investment in human being, an investment which the proponents of human

capital theory consider to be equally or even more worthwhile than that of physical capital.

In fact, contemporary knowledge in the United States acknowledges that investment in

human capital is three times greater than that in physical capital. Human capital theorists

have established that basic literacy enhances the productivity of workers in low skill

occupations. They further state that an instruction that requires logical or analytical

reasoning or provides technical and specialized knowledge, increases the marginal

productivity of workers in high-skilled professional positions. It has been proven that the

greater the provisions of schooling, the greater the stocks of human capital in the society,

and consequently, the greater the increase in national productivity and economic growth.

2.2.2 The Harrod-Domar Theory of Growth

The Harrod-Domar model was developed by two famous economist sir Roy Harrod of

England and professor Domar of the United State in the early 1950s. They independently

wrote papers suggesting similar growth rate, Harrod and Domar emphasized the dual

character of investment. Investment creates income (demand effect) and augment the

production process of the economy by increasing its capital stock (supply effect) as long as

net investment is taking place, real income and output will continue to expand. It is however

necessary that both income and output should expand at the same rate at which the

production capacity is expanding in order to maintain a full employment. Any divergent

between the two will lead to excess or idle capacity, thus forcing the entrepreneur to curtail

their investment expenditure. Harrod-Domar theory posited that one of the principal factors

17
necessary for economic growth is the mobilization of saving in order to generate sufficient

investment to accelerate economic growth. The more an economy can save and therefore

invest, the faster will the economic growth

Assuming that the total capital stock k bears a direct relationship to output (GDP), Y, which

is expressed as K/Y =S, the capital output ratio, it follows that any net additional capital

stock in the form of new investment ∆K, will bring about a corresponding increase in the

national output (GDP) i.e ∆Y

Now ∆K/∆Y=S

And ∆K=S∆Y

Therefore I=∆K=S∆Y----------------------------------- (i)

Assuming also that the national saving ratio is a fixed proportion of national output, i.e

s=S/Y------------------------------------------ (ii)

Therefore, the total new investment is determined by the level of total savings

S=I ------------------------------------------------------ (iii)

S=sY = S∆Y=∆K=I --------------------------------------- (iv)

sY= S∆Y--------------------------------------------------- (v)

then s/S=∆Y/Y ------------------------------------------ (vi)

Equation (vi), known as the Harrod-Domar equation, simply states that the rate of growth of

GDP (∆Y) is directly related to the national saving ratio (s) and inversely related to the

economy’s capital output ratio “S’’. This mean that the more en economy can save and

therefore invest, the faster the economy will grow. The actual level of growth for any level

18
of investment however depends on the productivity of investment measured by the inverse

of capital output ratio “S” the accelerator.

2.2.3 The Neo-Classical Growth Model (Solow Growth Model)

Robert n Solow in his paper “A contribution to the theory of economic growth” developed

what is now called Solow growth model. Solow seeks to analyze the case where labor and

capital can be combined in varying proportion unlike the Harrod-Domar theory which was

based on capital alone. Solow assumed that the production exhibits constant return to scale

that is if all input increase by a certain multiple, output will increase by exactly the same

multiple

The solow neoclassical growth model made use of a standard aggregate production

function in which Yt =AtKtαLt1-α, 0<α<1 ------------------------------ (i)

In this case, Y is gross domestic product, K is stock of capital, L is labor and A represents

the productivity of labor, assumed to grow at an exogenous rates ‘n’ and ‘g’.

Lt=L0ent ------------------------------------------ (ii)

At=A0egt ---------------------------------------- (iii)

The number of effective unit of labor AtLt grows at rate n+g for developed countries. These

rates have been estimated at about 2% per year for developing countries, it may be smaller

or larger depending on whether they are stagnating or catching up with the developed

countries. In the equation (i) above, α represent the elasticity of output with respect to

capital (the percentage increase in GDP as a result of a 1% increase in human and physical

capital). It is usually measured statistically as the share of capital in a country’s natonal

income accounts.

19
 The model assumes that a constant fraction of output S, invested. Defining k as the

stock of capital per effective unit of labor, k=K/AL and y as the level of output per effective

unit of labor y=Y/AL, the evolution of k is governed by

Kt=syt-(n+g+δ)kt=sktn-(n+g+δ)kt------------------------------------------ (iv)

Where δ is the rate of depreciation. Equation (iv) above implies that k converges to steady-

state value k* defined by sk*a=(n+g+ δ)k* or k*={ s/(n+g+δ) }1/(1-a) -----(v)

The steady-state capital labor ratio is related positively to the rate of saving and

negatively to the rate of population growth. The central predictions of the solow model

concern the impact of saving and population growth on real income. Substituting equation

(iii) into the production function and taking logs, we find that steady-state income per

capital is

Ln(Yt/Lt)= lnA0+g+α/(1-α)ln(s)-α/(1-α)ln(n+g+δ) ----------------------(vi)

Based on the fact that the model assumes that factors are paid their marginal products, it

predicts the magnitudes alongside the signs of the coefficients on savings and population

growth. In the case of competitive markets being assumed, the growth rate of the economy

can be seen as a weighted sum of growth rate of efficiency parameter gA(sometimes refers

to as technical progress of the labor force gL and of the capital stock gK. The weights of

labor and capital in gross domestic product (GDP)

gY=gA+aLgL+aKgK

The Solow growth model assumes that the marginal product of capital decreases with the

amount of capital in the economy, in the long run, as the economy accumulates more and

more capital, gK, approaches zero and the growth rate is determined by technical progress

20
and growth in the labor force. However, in the short run an economy that accumulates

capital faster will enjoy a higher level of output. According to the traditional neoclassical

growth theory, output growth result from one or three factors. Increases in labor quality and

quantity (through population growth an education), increases in capital (through saving and

investment) and improvement in technology (Todaro and Smith 2004)

2.2.4 The Modernization Theory

This theory focuses on how education transforms an individual’s value, belief and behavior

Exposure to modernization institutions such as schools, factories, and mass media inculcate

modem values and attitudes. The attitude includes openness to new idea, independences

from traditional authorities, willingness to plan and calculate further exigencies and•

growing sense of personal and social efficacy. According to the modernization theorists,

these normative and attitudinal changes continue throughout the life cycle, permanently

altering the individual’s relationship with the social structure. The greater the number of

people exposed to modernization institutions, the greater the level of individual modernity

attained by the society. Once a critical segment of a population changes in this way the pace

of society’s modernization and economic development quickens. Thus, educational

expansion through its effects on individual values and benefits sets in motion the necessary

building blocks for a more productive workforce and a more sustained economic growth. It

is on this premises that this paper based it study. This is because of the concept of the

theory. Considering the fact that human transformation will promote creativity that could

bring about development that will lead to modernization which is the dream of any nation.

2.3 Empirical Review

Amadi, Chijioke and Alolote (2019) examined the effect of human capital investment as a

catalyst for sustainable economic growth in Nigeria from 1986 to2017. The data used for the

21
study were sourced from the central bank statistical bulletin and national bureau of

Statistics. Ordinary Least Squares (OLS) techniques were used to analyze the data. The

findings of the study reveal that there is a positive relationship between government

expenditure on health and real gross domestic product. The findings of the study reveal that

there is a positive relationship between government expenditure on health and real gross

domestic product.

Oluwatoyin, Abiola Joseph and Adedoyin. (2018) investigated the link between aid and

human capital in promoting economic growth of Nigeria. The study used two models; the

first model was used to test the validity of the medicine model in Nigeria; while the

extended model was used to investigate the effect of aid and human capital shocks on

growth using Engle-Granger and Vector Error Correction Model (VECM) estimation

techniques respectively. The findings from the first model suggest that persistent increase in

foreign aid flows beyond a particular point (the optimal point) may adversely affect growth

thus confirming the proposition of the Medicine Model. Evidence from the study’s extended

model indicates that growth in Nigeria is sensitive to human capital shock via education

while the response from aid shock is trivial in the long run.

God’stime and Uchechi. (2014) studied the impact of human capital development on

economic growth in Nigeria. the study employed the augmented Solow human-capital-

growth model to investigate the impact of human capital development on national output, a

proxy for economic growth, using quarterly time- series data from 1999-2012. Empirical

results show that human capital development, in line with theory, exhibits significant

positive impact on output level. This implies that human capital development is

indispensable in the achievement of sustainable economic growth in Nigeria, as there is an

increase in economic performance for every increase in human capital development. The

results further revealed a relatively inelastic relationship between human capital

22
development and output level. Going forward, government and policy makers should make

concerted and sincere efforts in building and developing human capacity through adequate

educational funding across all levels.

Oluyemi and Oluwaseyi (2020) examined the effect of population growth on human

resource utilization nexus in Nigeria. The study used a secondary data for the period 1990-

2018, the study conducted unit root test and co-integration analyses to determine the

stationary and correlation in the long-run in the variables. The study used the error

correction model to ascertain the speed at which shocks can be corrected in the long-run.

Granger causality test was also carried out to ascertain the direction of causality among the

variables. Findings of the analysis revealed that population growth has a negative and

significant effect on human resource utilization. The study also revealed that unidirectional

causality runs from employment rate to population growth rate and a unidirectional causality

runs from employment growth rate to expected years of schooling.

Adediran (2014) investigated on investment in human capital and economic growth in

Nigeria for the period covering from 1961 and 2012. The study ensured the validity of

results by testing for the unit root properties and verifying cointegration among the variables

before estimation. These verifications were conducted with the tools of Augmented Dickey

Fuller test, Johansen’s Cointegration technique and Parsimonious Error Correction

procedure. Empirical findings established the fact that federal and states governments’

spending on human capital (education and health) impacted positively on economic growth

in Nigeria individually and collectively. The study also found evidence for democratic

governments at both federal and state levels to engage in active development planning (as in

the years 1960-1985 when government actively map out policies, programmes and projects

towards achieving economic growth) and also restore the lost glory of agriculture which was

displaced by the oil boom of the 1970s.

23
Adelakun (2011) focused on human capital development and economic growth in Nigeria

by adopting conceptual analytical framework that employs the theoretical and ordinary least

square (OLS) to analyze the relationship 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. The analysis confirms that there

is strong positive relationship between human capital development and economic growth.

Following the findings, it was recommended that stakeholders need to evolve a more

pragmatic means of developing the human capabilities, since it is seen as an important tool

for economic growth in Nigeria.

Wakeel and Alani (2014) examined the contribution of different measures of human capital

development to economic growth in Nigeria. It used data from Nigeria and adopted the

growth account model which specified 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, it was found that though little commitment had been accorded

health compare to education, empirical analysis showed that both education and health

components of human capital development are crucial to economic growth in Nigeria.

Uzodigwe, Umeghalu and Ozoh (2019) attempted to determine if the unabating calls for

increased funding of the education sector and other capacity building agencies are all that is

required to maximize the impact of human capital development on economic growth in

Nigeria. Using OLS technique to analyse the time series data that spans from 1980-2015,

human capital was quantified as total number of the country's labour force and also

disaggregated into capacities from primary, secondary and tertiary levels of education, in an

effort to capture both quality and quantity of human capital in the economy. The result

showed that there exists a positive relationship between labour, government expenditure on

24
education, government expenditure on health, and economic growth in Nigeria, while

enrolment into various levels of educational institutions (Primary, Post-Primary and

Tertiary) is negatively related to economic growth in Nigeria.

Anyanwu, Adam, Obi and Yelwa (2015) examined the impact of human capital

development on economic growth in Nigeria by adopting the endogenous modeling

approach cast within the autoregressive distributed lag (ARDL) framework, the bounds

testing analysis indicated existence of co integration between economic growth and human

capital development indicators. Findings also show that human capital development

indicators had positive impact on economic growth in Nigeria within the reviewed periods;

however, their impacts were largely statistically insignificant. Further evidence indicated

that equilibrium is fully restored for any distortion in the short-run. On this basis of the

emanating findings, this study proffered the need for government to invest more in human

capital development process and endeavours prioritize the health and education sectors

budgeting considering their growth driving potentials in Nigeria. Similarly, government

should endeavour to pay attention to the issue of school enrolment.

Ekperiware, Timothy and Egbetokun (2017) focused on human capital and sustainable

development in Nigeria. The scope of the study spanned from 1981 to 2014. Descriptive

statistics was used to illustrate observed trend in human capital and the pillars of sustainable

development (economic development, social development, and environment protection).

Vector Auto-Regression (VAR) econometric technique was used to measure trade offs,

effects, interrelationships, and scenario analysis of these indicators and the prominent role of

increased human capital scenario in achieving sustainable development. The analyses of the

interrelationship and scenario effects of increased human capital formation showed that

environmental degradation negatively affected human capital formation but increases with

economic growth.

25
Adeyemi and Ogunsola. (2016) examined the impact of human capital development on

economic growth in Nigeria using time series data spanning from 1980 to 2013. The study

employed ARDL Co-integration analysis to estimate the relationship among the variables

used in the study. The study established long-run co-integration among the variables. The

findings from the study revealed that there is positive long-run relationship among

secondary school enrolment, public expenditure on education, life expectancy rate, gross

capital formation and economic growth but it is statistically insignificant. The results also

showed that there is negative long-run relationship among primary, tertiary school

enrolment, public expenditure on health and economic growth. In line with the findings, the

study recommended that government should put in place the required education and training

policy that would guarantee quality schooling for primary and tertiary education.

Government should also commit more funds to health sector to enhance human capital

development.

Onodugo, Kalu and Anowor (2013) empirically examined the impact of investment in

human capital on Nigerian economy.The study employed the econometric method of

Ordinary Least Squares (OLS) using data spanning between 1980 and 2008 to construct a

multiple regression function. Expenditures on education (EXEDU) and health (EXHE);

domestic investment (DOM_INV); foreign direct investment (FDI) and government fiscal

investment (GF_INV) formed the regressors, while Real Gross Domestic product (GDP) is

the regressand. The results show that the variables of interest (expenditures on education

and health) are yet to be significant enough, at both 1% and 5% level of significance, to

influence the general output (RGDP). Recommendations demand that human capital

development should be planned, adequately funded and genuinely and sincerely managed in

line with the needs of the economy in order to attain high growth and standard of living.

26
Okafor Ofobruku, Obi-Anike and Agbaeze (2019) determined the effect of human capital

development on employees’ performance. Data collected from survey questionnaire were

analysed and tested using t-statistics generated from the model formulated for the three

hypotheses. The data collected were analyzed using the linear regression statistical

technique. Results indicated that human capital development activities in Nigeria hospital

can be used to optimize employees’ performance. In particular, the study found out that the

lacks of articulate human capital development strategy geared towards filling identified

skills, knowledge and attitude gap were responsible for the meagre employees’ performance

in Nigeria hospitals.

27
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Preamble

This chapter details methods employed in this study in an attempt to examine the impact of

human capital investment on the growth of Nigeria. The chapter entails model specification,

variable description, sources of data, method of data analysis and evaluation techniques used

in the study

3.2 Theoretical framework: Romers’ Endogenous Growth Theory

This study centered on human capital and growth theory postulated by Paul Romer (1986)

known as the endogenous growth model which emphasizes how education increases the

productivity and efficiency of workers by increasing the level of their cognitive skills. The

theory explained that investment in human capital, especially through education, will

increase the stock of human capital and the economic growth of the country. This implies

that on the theoretical basis, investment in capital is expected to impact positively on the

knowledge-base and technology in the country which can lead to economic growth. The

model is often explained with the Cobb-Douglas Function as thus

Y= A K ∝ L∝−1

Where Y= growth measure, K= Capital and L= labour or human capital

3.3 Model Specification

This study is based on the model used by Ibe and Olulu-Brigg (2015) on the relationship

between health expenditure and economic growth in Nigeria. The model expressed

economic growth proxied by (GDP) as a function of capital stock proxied by Gross Capital

Formation (GCF); human capital proxied as Total Health Expenditure (THE) and Total

Education expenditure TEE). This was specified as

28
 GDP=α 0 + α 1
GCF +α 2 TEE +α 3 TEH +U

The model was modified in the study by using real gross domestic product as proxy for

economic growth and human capital index as addition to the human capital proxies, but

gross capital formation is excluded from the model.

RGDP=α 0 +α 1 HC + α 2 GEE +α 3 GEH + U−−−−−−−−−−−−−−(i)

Where:

RGDP= Real Gross Domestic Product

HC= Human Capital

GEE= Government Expenditure on Education

GEH= Government Expenditure on Health

U=Stochastic Error Term

α0, α1, α2, α3 are parameter estimates corresponding to constants term, market capitalization all

share index and value of transaction respectively.

3.4 A-priori Expectation

dGDP
α1 = > 0, this implies that when there is increase in human capital, there will be
dHC

increase in gross domestic product and vice versa

dGDP
α2 = > 0, this implies that when there is increase in government expenditure on
dGEE

education, there will be increase in gross domestic product and vice versa

dGDP
α3 = > 0, this implies that when there is increase in government expenditure on
dGEH

health, there will be increase in gross domestic product and vice versa

29
3.5 Definition and Description of Variables:

i. Expenditure on Education: it is the amount of total government budget of a country

allotted in different educational activities. It is measured by government expenditure to

education as a percentage of gross national income

ii. Expenditure on Heath: This is the amount of funds set aside by the government for the

running of health services of employees, household and the state. It is measured as

government expenditure to health sector as a percentage of gross domestic product.

iii. Gross Domestic Product:

Gross domestic product is the sum of gross value added by all resident producers in the

economy plus any product taxes and minus any subsidies not included in the value of the

products. It is calculated without making deductions for depreciation of fabricated assets or

for depletion and degradation of natural resources. It is measured as the real gross domestic

product in order to adjust for price fluctuation. This real gross domestic product is

calculated as nominal gross domestic product divided by gross domestic product deflator.

GDP deflator is a measure of the price levels of new goods that are available in a country’s

domestic market.

3.6 Method of Data Analysis

This study employed descriptive analysis and inferential techniques of analysis. The

descriptive analysis such as mean, minimum, maximum, Skewness, Kurtosis and Jaques

Bera will be conducted. For the inferential analysis techniques such as Pearson Product

Moment Correlation (PPMC) analysis, Augmented Dickey Fuller (ADF) unit root test, co-

integration test and Error Correction Model (ECM) model technique was engaged. Notably,

Augmented Dickey Fuller (ADF) unit root was used to test the stationarity of the variables

used in the study, since the variables involved the use of time series data. After the

30
stationarity test, the ARDL bound test co-integration approach was used to estimate the

relationship among human capital, government expenditure on education, government

expenditure on education and gross domestic product.

3.7 Evaluation of the Study

The process of evaluation involves deciding whether or not the estimates are theoretically

meaningful and statistically satisfactory. Thus three criteria were employed in evaluating the

estimates:- these are

Theoretical a-prior criterion

Statistical criterion

Econometrics criterion

Theoretical Criterion

The theoretical a-prior criterion also known as economic criterion is set by economic theory

by examining the sign and size of the coefficient of the variables in the model. The

estimates would be considered unsatisfactory if the economic a-prior criterion is not

established

Statistical Criteria

Statistical criteria were used to ascertain the significance of the regression estimate. i.e

investigation of the statistical reliability of the estimate of the regression coefficient as well

as the explanatory power of the regression. This is determined by the statistical theory

through the use of the standard error test, coefficient of determination (R 2), T-statistics and

F-statistics as well as the probability test

31
Econometric Criteria

This is used to test the reliability of the statistical criterion, in other word econometrics

criterion test the efficiency, consistency and bias of the model of the study. Prominent

among the econometric criterion is the Durbin-Watson statistics which investigate the

presence of autocorrelation in the model. Hence if the estimated value of Durbin-Watson ‘d’

is less than tabulated dL or greater than 4-dU at a chosen significant level, then there is

presence of serial autocorrelation.

3.8 Sources of Data

This study used secondary data extracted from the statistical bulletin of the Central bank of

Nigeria and the Nigeria Budget Statement for the period covered in the study, as well as the

World Development Indicator. Data covered the period of thirty (30) years spanning from

1990 to 2019.

32
 CHAPTER FOUR

RESULTS AND DISCUSION

This chapter presents result of analysis conducted in the study in the quest to investigate the

impact of human capital investment on the growth in Nigeria. Result presented in this

chapter included the descriptive statistics of all the variables included in the study, the

correlation analysis, ADF unit root test, bound test co-integration approach, ARDL short run

and long run estimation. Results are presented in tables followed by discussion of findings:

4.1 Descriptive Analysis

Table 4.1: Descriptive Statistics
RGDP HC TEE TEH
Mean  40536.60  1.595405  0.865370  3.427624
Median  36247.75  1.594099  0.850000  3.563693
Maximum  71387.83  1.974245  1.311111  4.473327
Minimum  19199.06  1.222592  0.850000  2.431666
Std. Dev.  19574.30  0.236642  0.084187  0.550426
Skewness  0.354278  0.003215  5.199469  0.019149
Kurtosis  1.525471  1.680162  28.03448  1.998554

Jarque-Bera  3.345359  2.177517  918.5791  1.255451

Probability  0.187743  0.336634  0.000000  0.533805

Observation
s  30  30  30  30
Note: RGDP=Real Gross Domestic Product (billion naira), HC=Human Capital (index),
TEE = Total Expenditure on Education (% of GNI), THE=Total Expenditure on Health (%
of GDP)
Source: Author’s Computation (2021)

Table 4.1 presents mean values, standard deviation, minimum, maximum, skewness,

kurtosis, and jarque-bera statistics for each of the variables included in the study. Statistics

reported in Table 4.1 showed that the average of real gross domestic product stood at

40536.60 billion naira with minimum and maximum value of 19199.06 billion naira and

71387.83 billion naira respectively. Mean value of human capital, total expenditure on

33
education and total expenditure on health stood at 1.595405, 0.865370% of GDP and

3.427624% of GDP respectively. Minimum and maximum value stood at 1.222592 and

1.974245 for human capital, 0.850000% of GDP and 1.311111 % of GNI for total

expenditure on education, 2.431666% of GDP and 4.473327% of GDP for total expenditure

on health. Skewness statistics of 0.354278, 0.003215, 0.003215 and  0.019149 presented in

Table 4.1 revealed that all the variables except capital budget implementation are positively

skewed. Jarque-bera statistics revealed that all the variables except total expenditure on

education are normally distributed

4.2 Correlation Analysis

Table 4.2: Correlation Matrix
RGDP HC TEE THE
RGDP 1
HC 0.975275514 1
TEE -0.20485484 -0.2975511 1
TEH 0.564773485 0.64632243 -0.2257289 1
Source: Author’s Computation, (2021)
Table 4.2 reported correlation coefficient for pairs of variables used in the study. Result

showed that real gross domestic product has positive relationship with human capital but

real grosss domestic product has negative relationship with total expenditure on education

and total expenditure on education. Specifically the table reported correlation coefficient of

0.975275514 for human capital and real gross domestic product, -0.20485484 for real gross

domestic product and total expenditure on education, 0.564773485 for real gross domestic

product and total expenditure on health. Other correlation coefficient stood at -0.2975511

for human capital and total expenditure on education, 0.64632243 for human capital and

total expenditure on health, -0.2257289 for total expenditure on health and total expenditure

on education. Overview of the result indicated that there is strong positive relationship

between human capital and real gross domestic product.

Trend Analysis
34
Figure 4.1: Trend of human capital and economic growth between in Nigeria (1990- 2019)
Figure 4.2 presents the trend of both human capital and economic growth of Nigeria over

that period covered in the study. Observably the figure showed that both human capital

index and real gross domestic product maintain and significant upward trend over time.

4.3 Unit Root Test

Unit root test was carried out to ascertain the stationary property i.e. predictability properties

of the variables. The presence of a unit root implies that the time series under investigation

is non-stationary; while the absence of unit root shows that the series is stationary. The test

shows the order of integration of each of the variables, which reflect the behavior of each of

the variables when exposed to external shock. Unit root test employed is this study is the

Augmented Dickey-Fuller (ADF) tests, and the summary is presented in Tables 4.3:

35
Table 4.3: Summary of Unit Root Test Result
Variable ADF statistics 1% critical 5% critical Order of
s value value integration
RGDP -5.135823* -4.323979 -3.580623 I(1)
HC -5.526718 -4.323979 -3.580623 I(1)
TEE -5.286693 -4.339330 -3.587527 I(1)
TEH -4.508750 -4.309824 -3.574244 I(0)
Note: *(**)*** connote significance at 1%, (5%), 10% significant levels respectively
Source:Author’s Computation, (2021)

Unit root test result presented in Table 4.3 revealed that total expenditure on health is

stationary at level, meaning that they are integrated of order zero I(0), reflecting that total

expenditure on health do not retain innovative shock passed on it more the same period.

However other variables employed in the study including real gross domestic product, total

expenditure on health and total expenditure on education only become stationary after first

differencing, i.e these series are integrated of order one I(1). Hence summary of unit test

conducted in the study showed that series included in the models for the study are

integrated of mixed order i.e I(0) and I(1).

4.4 Analysis of the effect of environmental pollution on health status in Nigeria

Table 4.4: ARDL Co-integration Bound Test

F-Statistic Lower Bound Critical Upper Bound Critical Value

Value

13.98016 3.23 4.35

Note: critical values are values at 5% significant level.
Source: Author’s Computation, (2021)
Table 4.4 reported lower and upper bound critical values, as well as the F-statistics for the

wald test carried out to test the joint null hypothesis that the coefficients of the lagged level

variables are zero i.e no long run relationship exist between the variables. The result showed

an f-statistics value of 13.98016 and bound critical values of 3.23 and 4.35 for lower and

upper bounds respectively. Comparing the f-statistic to the critical values it was observed

36
that the f-statistics is greater than the upper bound critical value (a condition for the

rejection of the null hypothesis of no long run relationship). Thus the study rejects the null

hypothesis that there is no co-integration (long run) relationship among the variables in

favour of the alternative hypothesis of presence of long run relationship between the

variables.

Table 4.5: ARDL cointegration and Long run form Estimation Result
Cointegrating Form

Variable Coefficient Std. Error t-Statistic Prob.   

D(RGDP(-1)) -0.079113 0.174490 -0.453393 0.6640

D(RGDP(-2)) 0.328996 0.164429 2.000836 0.0855
D(RGDP(-3)) 0.169244 0.151683 1.115775 0.3014
D(HC) -1.796781 2.813478 -0.638633 0.5434
D(HC(-1)) -11.090324 5.693681 -1.947830 0.0925
D(HC(-2)) 3.603108 4.911284 0.733639 0.4870
D(HC(-3)) 9.138638 3.732510 2.448390 0.0442
D(TEE) -0.134844 0.034152 -3.948322 0.0055
D(TEE(-1)) 0.020646 0.035696 0.578378 0.5811
D(TEE(-2)) -0.047429 0.033646 -1.409640 0.2015
D(TEH) -0.159159 0.024201 -6.576506 0.0003
D(TEH(-1)) 0.113568 0.034860 3.257868 0.0139
D(TEH(-2)) 0.024033 0.025297 0.950029 0.3737
D(TEH(-3)) -0.041255 0.021631 -1.907226 0.0982
CointEq(-1) -0.377756 0.073149 -5.164184 0.0013

    Cointeq = RGDP - (4.4430*HC -0.6492*TEE -1.0872*TEH +

9.0110 )

Long Run Coefficients

Variable Coefficient Std. Error t-Statistic Prob.   

HC 4.442969 0.420665 10.561783 0.0000

TEE -0.649205 0.115128 -5.639007 0.0008
THE -1.087184 0.307027 -3.541009 0.0095
C 9.010973 0.140578 64.099494 0.0000
Source: Author’s Computation, (2021)
Estimation result presented in Table 4.3 revealed both the short run and the long run

estimation result. Table 4.3 shows that on the short run human capital has negative

37
insignificant effect on real gross domestic product with coefficient of -1.796781 (p=0.5434

> 0.05), total expenditure on education has negative significant effect on real gross domestic

product with coefficient of -0.134844 (p=0.0055 < 0.05) and total expenditure on health has

negative significant effect on real gross domestic product with coefficient of -0.159159

(p=0.0003 < 0.05). Reported ECT(-1) showed that only about 37% of the short run

inconsistencies is corrected and incorporated into the long run dynamic annually.

On the long run also result showed that human capital has positive significant effect on real

gross domestic product with coefficient of 4.442969 (p=0.0000 < 0.05), total expenditure on

education exert negative significant effect on real gross domestic product with coefficient of

-0.649205 (p=0.0008 < 0.05), and total expenditure on health has negative significant effect

with coefficient of -1.087184 (p=0.0095).

Table 4.6: Post Estimation Test

Normality Test
Statistics Values Probability
Jarque-Bera Stat 0.803866 0.669026
Serial Correlation LM Test
Statistics Values Probability
F-statistic 2.756107 0.1560
Heteroscedasticity Test
Statistics Values Probability
Breusch-Pagan-
Godfrey 0.656398 0.7781
Source:Author’s Computation, (2021)
The Jarque-bera statistics value for error term of the estimated models stood at 0.803866 (p

> 0.05). The result revealed that there is no enough evidence to reject the null that the error

term of the estimated model is normally distributed, thus confirming that the error term

normally distributed. Serial correlation LM test result stood at 2.756107 (p >0.05), reflect

that there is no evidence to reject the null hypothesis of no serial correlation between

successive values of error terms of the estimated models. Hence there is no problem of serial

autocorrelation in the estimated models. F-statistics and probability values of 0.656398 and

38
0.7781 for Breusch-Pagan-Godfrey heteroscedasticity test reflect that there is no evidence to

reject the null hypothesis of constant variance of the error term (homoscedasticity). Hence

the test confirmed that there is no problem of heteroscedasticity in the error term of the

estimated models.

4.5 Discussion

Result showed that on the short run human capital has negative insignificant effect on real

gross domestic product with coefficient of -1.796781 (p=0.5434 > 0.05) reflecting that one

percent increase in human capital will lead to about 1.79% decrease in real gross domestic

product. An increase in human capital in the short run is a cost to the economy as huge

amount is spend on training, education and health of the human resources such that it

reduces funds for investment in capital and other materials for the economic expansion,

thereby leading to decrease in gross domestic product at that period. On the other hand

result showed that on the long run human capital has positive significant effect on real gross

domestic product with coefficient of 4.442969 (p=0.0000 < 0.05) reflecting that when

human capital increases there will be increase in real gross domestic product. This result is

in line with the findings of Oluwatoyin, Abiola, Joseph and Adedoyin (2018); Adelakun

(2011) as well as God’stime and Nkechi (2014) which concluded that there is long run

positive relationship between human capital and economic growth. This could be because

on the long run human capital itself has become an improvement in the value of human

resources in terms of health, training and health which enhances productivity of the

economy thereby increasing the economic growth.

Result also showed that total expenditure on education has negative significant effect on real

gross domestic product with coefficient of -0.649205 (p=0.0008 < 0.05) and -0.134844

(p=0.0055 < 0.05) on the long run and short run respectively, reflecting that when increases

39
by one percent on the short run, real gross domestic product will decrease by 0.64%, but on

the long run, one percent increase in total expenditure on education will lead to about 0.13%

decrease in real gross domestic product. This long run effect is in line with the findings of

Adelakun (2011), Uzodike, Umeghalu and Ozoh (2019) as well as Wakeel and Alani (2014)

which indicate positive relationship between government expenditure on education and

economic growth. This result showed that on the short run expenditure on education is a

diversion of fund from investment activities in the productive sector therefore, increase in

expenditure on education will reduce production capacity hence decline in economic

growth. However, on the long run, the decline could be because higher proportion of

expenditure on expenditure often goes to the primary and secondary level of education in

the country which produces most labour in the informal sector of the economy.

Result also showed that total expenditure on health has negative significant effect on real

gross domestic product with coefficient of -1.087184 (p=0.0095) and -0.159159 (p=0.0003

< 0.05) on the long run and short run respectively, reflecting that when increases by one

percent on the short run, real gross domestic product will decrease by 1.08%, but on the

long run, one percent increase in total expenditure on health will lead to about 0.15%

decrease in real gross domestic product. The result is in line with the findings of Wakeel and

Alani (2014) which stated that health is a crucial component of economic growth as well as

Adeyemi and Ogunsola (2016) which concluded that government expenditure on health has

negative effect on economic growth. The short run result showed that expenditure on health

is a diversion of fund from investment activities in the productive sector therefore, increase

in expenditure on health will reduce production capacity hence decline in economic growth.

However, on the long run the decrease could be associated to the inefficiency,

mismanagement of government funds allocated to the health sector. Higher proportion of

40
expenditure in the health sector also could be on recurrent expenditure which contributes

less to economic activities thereby leading to decline in economic activities.

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary

The importance of investing in human capacities is well appreciated and understood in

economies that intend to attain sustainable growth since the quality of nation’s development

is dependent on the quality of its workforce. Hence, this study analyzed investment in

human capital and economic growth in Nigeria. Human capital as concept refers to the

know-how, capabilities, skills and expertise of the human resources of the country. Chapter

two reviewed relevant theoretical literature on human capital and economic growth which

include Romers’ Endogenous growth model as well as empirical literature on the topic from

developed countries, developing countries and Nigeria. Specifically, this study examined

trend in impact of government expenditure on education on the economic growth of Nigeria;

impact of expenditure on health on the economic growth of Nigeria; long run relationship

between human capita and economic growth of descriptive statistics of all the variables

included in the study, the correlation analysis, ADF unit root test, bound test co-integration

approach, ARDL short run and long run estimation Nigeria. The study used human capital,

total expenditure on education and total expenditure on health as explanatory variables and

real gross domestic product as dependent variable. Data were extracted from Central Bank

of Nigeria statistical bulletin and World Bank index for the period 1990-2019. Analysis was

conducted with descriptive statistics of all the variables included in the study, the correlation

41
analysis, ADF unit root test, bound test co-integration approach, ARDL short run and long

run estimation with post estimation. Result indicated that

i. Human capital has negative insignificant effect on real gross domestic product

on the short run

ii. Total expenditure on education has negative significant effect on real gross

domestic product on the short run

iii. Total expenditure on health has negative significant effect on real gross domestic

product on the short run

iv. Human capital has positive significant effect on real gross domestic product on

the long run

v. Total expenditure on education has negative significant effect on real gross

domestic product on the long run

vi. Total expenditure on health has negative significant effect on real gross domestic

product on the long run

5.2 Conclusion

Based on the findings of the study, it is concluded that investment in human capital has

negative significant effect on economic growth of Nigeria. This implies that effort of the

government in improving human capital through investment in health and education will

remarkably influence the growth of the economic sectors. The effect on the other hand is

negative which means increase in level investment in human capital will reduce level of

economic growth while decrease in level of investment in human capital will increase level

of economic growth. This contract the theoretical expectation in relation to the human

capital theory associated with Paul Romer (1986). However, the findings is in line with also

empirical findings of previous researchers such as Adeyemi and Ogunsola (2016), Okafor,

42
Okorodu, Obi-Anike and Agbaeze (2019) but contradict that of Adediran (2014), Oluyemi

and Oluwaseyi (2020), Adelakun (2011), Uzodigwe, Umeghalu and Ozoh (2019),

5.3 Recommendation

In line with these findings, it is recommended that

 Government should ensure efficient and effective utilization of government

expenditure on health and education in order to increase economic growth in the

long run

 Government need to evolve a more pragmatic means such as development of

vocational and creative skill in the educational institutions to develop the human

capabilities, since it is seen as an important tool for economic growth in Nigeria

 Government should ensure policy that encourages specifically the productive units in

registering under the National Health Insurance Scheme in order to ensure that

government expenditure on health is utilized in the productive sector so as to

enhance economic growth

 Human capital investment should be planned, adequately funded and genuinely and

sincerely managed in line with the needs of the economy in order to attain high

growth

43
44
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