CHAPTER ONE

INTRODUCTION

1.1       Background to the Study

The definition of human capital varies in context, but the majority put stress on the economic returns in the form of higher earnings and economic growth. Friedman defined growth as an expansion of the system in one or more dimensions without a change in its structure and development as an innovative process leading to the structural transformation of social systems. Human capital on the other hand as studied by Frank & Bemake (2007), is an amalgam of factors such as education, experience, training, intelligence, energy, work, habits, trustworthiness, and initiative that affect the value of a worker’s marginal product. Education and well-being are basic objectives of human capital development; they are in themselves, important ends, in that health is central to well -being, and education is essential for a satisfying and rewarding life; both are fundamental to the broader notion of expanded human capabilities that lie at the heart of the meaning of development (Todaro and Smith, 2011).

According to Oboh (2010), no country has achieved sustainable economic development without substantial investment in human capital. The role and importance of human capital in propelling the pace of economic growth cannot therefore, be over emphasized. The Organization for Economic Co-operation and Development (OECD) proposed a broad definition of human capital as the knowledge, skills, competence and attributes embodied in individuals that facilitate the creation of personal, social and economic well-being (OECD, 2001). It refers to those skills, knowledge, and experience possessed by an individual or population, which can be viewed in terms of their value or cost to an organization or a country.

Mahroum (2007) suggested that at the macro-level, human capital management is about three key capacities, the capacity to develop talent, the capacity to deploy talent, and the capacity to draw talent from elsewhere. Collectively, these three capacities form the backbone of any country’s human capital competitiveness.

Recent U.S. research shows that geographic regions that invest in the human capital and economic advancement of immigrants who are already living in their jurisdictions help boost their short- and long-term economic growth (Singer, 2012).There is also strong evidence that organizations that possess and cultivate their human capital outperform other organizations lacking human capital (Crook et.al, 2011).

Economic growth is in itself, the increase in the amount of goods and services produced by an economy over a period of time. It is conventionally measured as the percentage rate of increase in real gross domestic product, or real GDP. Economic growth can be measured as a percentage change in the Gross Domestic Product (GDP) or Gross National Product (GNP). In Nigeria being a developing country, the role of government is crucial in both scope and significance for increased and substantial economic growth. Economic growth is fundamental for sustainable development. It is usually difficult for a country (especially a developing country), to improve the quality of life of its growing population without economic growth.

1.2       Statement of the Problem

The ability to develop one’s skill, knowledge and wellbeing is an important tool in enhancing productivity. Nigeria’s major objective has been to attain economic stability, material prosperity, peace and social progress. However, this has been hampered as a result of internal problems. These include inadequate human development, primitive agricultural practices, weak infrastructure, and uninspiring growth of the manufacturing sector, a poor policy and regulatory environment, political instability, corrupt leaders and mismanagement and misuse of resources. Over the years, little attention has been paid to the education and health sectors which are major determinates of how well an individual performs in skill, creativity and wellbeing, much of the planning was catered on the accumulation of physical capital for rapid growth and development without the important role played by human capital in the development process. Evidence is seen from the United Nations Educational, Scientific and Cultural Organisation (UNESCO) recommendation of 26 percent budgetary allocation to education, but in the Nigerian case its 6 percent allocation goes contrary also the Abuja declaration of 2001 endorsed by African Union (AU) had proposed setting aside 15 percent of the annual budget by African countries for health sector financing, Nigeria in her bid has failed to meet up with this. A recent research by the World Health Organisation (WHO) showed that out of 191 countries it accessed, Nigeria rated 187 in terms of healthcare delivery.

Developing Nigeria’s human capital is critical especially now that the country is aspiring to be among the 20 leading economies in the world by the year 2020, but this aspiration will be a venture in futility so long as human capital development is not accorded high priority. Furthermore, 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 (Dauda, 2010).

Human capital investment is a requirement for Nigeria and for Nigerians to become competitive in the 21st century globalized economy which is skill and knowledge based, an improvement in human capital is important. A country’s competitiveness in the New International Economic Order (NIEO) is strongly connected to the quality of her human capital (Ejere, 2011). Hence human capital formation is undoubtedly the pivot for any meaningful program of socio-economic development of Nigeria; and indeed of any country (Ejere, 2011). Various developmental economists have written many articles and journals on human capital development and economic growth and a lot of them have proposed policies that will aid government in ensuring that investing in human capital will increase productivity but the growth rate of the Nigerian economy is still on a slow pace. With regards to this premise, this study aims at extending the time period of what other researchers (such as Oladeji, 2015) have already done and to empirically investigate the impact of human capital on Nigeria’s economic growth from 1980 to 2015

1.3 Research Questions

In the light of the problem therefore, this study addresses and answers the following questions?

1. What effect does government expenditure on health have on economic growth in Nigeria in Nigeria?
2. What effect does government expenditure on education have on economic growth?

1.4 Objectives of the Study

The general objective of the study is to empirically investigate the impact of human capital development on economic growth in Nigeria within the period of 1980 to2015. While the specific objectives are as follows;

• To determine the effect of government expenditure on health on economic growth in Nigeria
• To determine the effect of government expenditure on education on economic growth in Nigeria.

These would help to better understand and appreciate how human capital development contributes significantly to economic growth.

1.5 Research Hypothesis

The hypothesis would be stated in the null form:

Ho­­: Government expenditure on education does not have significant impact on economic growth in Nigeria.

Ho: Government expenditure on health does not have a significant impact on economic growth in Nigeria.

1.6 Significance of the study

The strategic importance of human capital development on the economy of Nigeria necessitates the relevance of its study in this particular work. The entire work done in this project is of immense benefit to policy makers in the country.The government and its agencies shall find this work resourceful in formulating policies and regulations on education and health policy to aid economic growth. This work will also be a resourceful material for private individuals, firms and multi-national companies that look forward to investing in Nigeria while considering the available skilled and healthy manpower. In addition, it will provide other researchers with useful information and guide in further studies.

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