THE ROLE OF HUMAN CAPITAL DEVELOPMENT IN ECONOMIC DEVELOPMENT

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THE ROLE OF HUMAN CAPITAL DEVELOPMENT IN ECONOMIC DEVELOPMENT

ABSTRACT

Although several theories of growth point towards a positive effect of human capital on growth, empirical evidence on this issue has been mixed. Using the Correlation and Regression analyses, this work examines empirically the role of human capital in Nigeria's economic development. Empirical results indicate that there is, indeed a long-run relationship among labour force, physical capital investment proxied by real gross domestic capital formation, human capital formation, proxied by enrollment in educational institutions and economic growth in Nigeria. Findings show that there is a feedback mechanism between human capital formation and economic growth in Nigeria, Thus, the policy implication of the findings is that government should place a high priority on human capital development. Efforts should be intensified to increase investment in human capital to achieve the growth which would engender economic development. Most importantly, education should be given prominence in Nigeria's developmental efforts. This would propel the economy to higher level of productivity.

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

The role of human capital in economic growth cannot be overemphasized. The development of human capital has been recognized by economists to be a key prerequisite for a country's socio-economic and political transformation. Among the generally agreed causal factors responsible for the impressive performance of the economy of most of the developed and the newly industrializing countries is an impressive commitment to human capital formation.

(Adedeji and Bamidele, 2003; World Bank, 1995, Barro, 1991). This has been largely achieved through increased knowledge, skills and capabilities acquired through education and training by all the people of these countries.

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 (1996) human resources are critical variables 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. This is underscored by Harbinson (1973) who opined that "human resources constitute the ultimate basis for the wealth of nations. Capital and natural resources are passive factors of production: human beings are the active agents who accumulate capital, exploit natural resources, and 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".

Nigeria's most glaring objective since independence in 1960 has been to achieve 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, inadequate regulatory environment and mis-management and misuse of resources (corruption). In order to ensure the economy delivers on its potentials, 'the country experimented with two development philosophies-a private sector-led growth in which the private sector served as the "engine house" of the economy and a public sector - driven growth in which the government assumed the "commanding heights" of the economy. The initial low level of private sector development, however, led to public sector dominance of the economy, encouraged by growth in the oil sector (UNDP, 2009).

It is noteworthy that since the advent of civilian rule in 1999, growth performance has improved significantly. The last seven years witnessed an average growth rate of about 6 percent (UNDP, 2009:5; CBN, 2008) However, economic growth has not resulted in appreciable decline in unemployment and poverty prevalence. Human development has remained unimpressive as shown by the indicators in Table 1.

Table 1: Nigeria's Human Development Summary Statistics by Zones, 2009

Zones

Human

Gender

Inequality

Development

Poverty

Development

Empower

Measure

Index

(HDI

Index

Measure

ment

(INQ)

Value)

(HPI)

(GDM)

Measure

(GEM)

North Central

0.490

34.65

0.478

0.244

0.49

North West

0.420

44.15

0.376

0.117

0.44

North East

0.322

48.90

0.250

0.1.18

0.42

South West

0.523

21.50

0.507

0.285

0.48

South East

0.471

26.07

0.455

0.315

0.38

South South

0.573

26.61

0.575

0.251

0.41

Source: UNDP (2010:5) Summary: Human Development Report Nigeria 2009-2010, UNDP, Abuja

1.2 STATEMENT OF THE RESEARCH PROBLEM

Over the years, successive Nigerian governments recognized the importance of human capital formation in the development process and have embarked on various programmes and projects which led to the establishment of educational institutions and health Centre’s throughout the country. However, in the late 1970s and early 1980s, federal government spending grew substantially resulting in fiscal crisis, inflation, and heavy borrowings.

Subsequently, through the austerity measures adopted in 1982 and Structural Adjus

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