CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The acquisition of educational training, improvement in health care delivery and expansion of R&D, constitute human capital development of any nation and it is always critical factors in the economic development of that nation. It is based on this premise; Abiodun (2009) opined that Human resources constitute the ultimate basis for wealth creation that engenders national economic development. According to Kofi (2001), Education though regarded as one of the components of human capital, is a transformational tool on which rest the foundation of freedom and sustainable development. For national economic policies, goals and objectives to be attained, effective, proficient and adept human resource are vital components that cannot be overestimated. This is because human beings constitute a vital part of any nation, thus, acts as building blocks and backbones on which the level of productivity in any economy is determined. Human capital development according to Ogunjiuba, (2013) is described as a means of realizing the long-term economic development of a country. This is so because it helps to sharpen the peoples’ potentials by refining their ideological, productive, and educational competences. This implies that the empowerment of the people is imperatives because it can enable them to participate actively in their own development. Human capital development is also a means for enhancing the skills, knowledge, productivity and inventiveness of people through a process of human capital formation (i.e. formal education, training and retraining of the labour force). It has therefore been globally recognized according to Folloni&Vittadinni, (2010) that Human capital is one major factor that is responsible for economic wellbeing of the people if properly channeled by the economic stakeholders. Ogunjiuba, (2013) added that human capital can be termed as the acquired and useful skills and abilities of a society. The importance of human capital development to economic growth has been seen as strategic to the socio-economic development of nations. These include education, health, Research and development (R&D) etc. The development of human capital is therefore crucial because it ensures that the nations’ human resource endowment is refined -through knowledge acquired from the education sector, skills-through vocational education and entrepreneurship training, productivity- through on the job training and health-through improved health sector for the sole purpose of making optimal utilization of other productive resources that can engender growth and development in Nigeria. Human capital development is a strategy that centers on human capital resources and not the production of goods and services. It is a people centered strategy because what really matters is empowerment of people to identify their own priorities and to implement programmes and projects of direct benefit to them. This in turn according to Alehile (2009) implies the active participation of people in the development process and the consequent need to construct institutions that permit and indeed encourage that participation. As such, it is necessary that these assets (human) are deployed sensibly for optimum result. An incentive system which is defective can result in a waste of human resources and a higher incidence of poverty as well as greater inequality in the distribution of income. While it is necessary to use existing resources wisely, it is equally significant to add to the existing resources through human capital formation. According to Ogunjuiba (2013), there can be no significant economic growth in any country without adequate human capital development. In the past, Nigeria has unintentionally focused on planning and accumulation of physical capital for rapid growth and development, without recognizing the deterioration of human capital in the developmental process of the nation’s economy. A critical challenge therefore is how to actually achieve this sustainable economic growth and development. According to the IMF (2002), sustainable development is in three dimensions, they are; economic development, social development and environmental protection. The essence of these pillars according to Oluwatobi and Ogunriola, (2011) is to preserve and enhance the capacity and potential of future generations while meeting the needs of the present generation. To accomplish these multi-dimensional tasks, human capital should be systematically and strategically refined and positioned for the preservation of both the present and the future economic growth processes and development. Consequently, according to Lyakurwa (2007), human capital development has the capacity to improve on people’s choices and opportunities, improve healthy living through acquired skills and knowledge and in the long run enhance growth in the nation’s gross domestic product through increased productivity in both the industrial and services sector. The importance of human capital development on economic growth has been emphasized by the growth theory popularized by Romer,(1986) and Lucas,(1988).An interesting idea in their work is that in the long run, output per unit could increase even when inputs were exhaustively accounted for technically advanced human capital and a growing knowledge base appear to be part of this wellspring of growth .An implication of Lucas ‘hypothesis on human capital is thus associated with investment in man and his development as creative and productive resources(Harbison,1962). Nigeria as a Nation is immensely endowed both in natural and human resources. The resources available from one end to the other are immeasurable to the extent that, given a purposeful and dynamic leadership with proper institutions; economic prosperity and output rate would have been doubled even before the 20th
century. Hence the primary focus of the current Nigeria government tagged transformation agenda has been to finding a way to accelerate the growth rate of national income and to engage in structural transformation of her subsistence nature of resource based economy to a production and consumption based economy in order to break the cycle of poverty ,low productivity and economic stagnation. According to World Bank (2010) cited in Oluwatobi & Ogunriola, (2011),Nigeria has found it difficult to grow her economy in her quest to become a knowledge-based economy because of the challenges faced in the national educational system. According to the report, some major challenges limiting the advancement of Nigeria’s education system are low tertiary enrolment level, teaching with obsolete methods, strikes and administrative hiccups, corrupt teachers asking bribes to pass students, frequent absence of teachers during teaching periods, lack of ICT infrastructure and other teaching methods, and poor funding. These problems can also be categorized into poor access to education, poor quality of education and poor funding of education. Preceding the study undertaken by the World Bank’s (2010), Odia and Omofonmwan’s (2007) had observed that the Nigerian education system was bedeviled by several challenges, which included poor funding, poor educational infrastructure, inadequate classrooms, lack of teaching aids (such as projectors, computers, laboratories and libraries), dearth of quality teachers and unconducive learning environment. Moreover, they pointed that many social vices, such as examination malpractice, cultism, hooliganism, and corruption, have emerged from the school system. These in addition, compound the problems that impede the nation’s ability to cultivate the kind of people that can serve as tools to facilitate economic growth and development. Due to the importance of human Capital in economic development, the Federal Government Transformation Agenda was instituted to recognize the centrality of human capital development as a vital transformational tool for achieving economic growth. Therefore, the aim of the agenda is to empower the citizenry to acquire skills and knowledge that would prepare them for significant productivity. The Transformation Agenda, which covers the period between 2011 and 2015, draws its inspiration from the vision (20 20 20)-20th
best Economy in year 2020 and the 1st National Implementation Plan (NIP). The objective is to deepen the effects and provide a sense of direction for the current administration over the next four years (Ogunjiuba, 2013). As knowledge-based sectors has become more and more dominant in the economic developmental process in the world i.e. manufacture of (ICT devices, pharmaceuticals, telecommunications and other ICT based services, Research and Development), skills and human capital development become critical subject for stakeholders and practitioners who engage in economic development both at the national and regional level (Johnson 2011). That is why in the report of Bloom and Canning, (2003) health is regarded another fundamental element of economic growth and development and is one of the fundamental determinants of economic performance both at the micro and macro levels. This is derived from the fact that health is both a direct component of human well-being and a form of human capital that increases an individual’s capabilities. A cursory look at Nigerian economy shows that human capital development is still at its lowest ebb as the various institutions that are saddled with the responsibilities of harnessing Nigerians potentials have been on the downward trend because of corruption. Having known that human capital refers to the abilities and skills of human resource and that human capital development refers to the process of acquiring and increasing the number of persons who have the skills education, and experience which are critical for the economic growth of the country (Harbison, 1962), there is need for direct approach method for substantial lifting of the health sector out of the current state in Nigeria. Another important component of human capital development which has been neglected overtime is research and development. The importance of Research and Development cannot be overemphasized. In Nigeria however, research has been on the decline. Educational research, and indeed research of all kinds, is almost as old as man on earth. All that has changed over the years is the approach or method(s) employed in particular research activities. The need to carry out investigations and evolve new theories is one of the most fundamental functions of the “body of the intelligent†of a particular society. Similarly, the place of such research activities in the developmental efforts of any society has also been recognized. This is why special attention has been paid to research and documentation by countries that have been eager to develop technologically. For instance, according to Nkwi (1992), following the Meiji Restoration in 1968, the Emperor of Japan was required to take five oaths, one of which stated that "knowledge will be sought and acquired from any source with all the means at their disposal, for the greatness and security of Japan". Today, Japan is a great and powerful industrial nation (Jimoh 1998).In Nigeria, however, research has not been paid much attention. What therefore really matters in Nigeria is the empowerment of people and the mobilization of economic surplus into productive investment channels. There is also the need for the Nigerian economy to eliminate or minimize those constraints towards human capital development so as to enhance rapid economic growth. It is evident that for achieving long term Economic growth, the amount of Research carried out either for information about the past or for the future development is very crucial to the economic development in Nigeria. Besides the importance of R&D, knowledge needed sectors like IT, the desire of improving R&D in the productivity sectors, such as agriculture, manufacturing, communication, transportation, service etc is also important element that will lead to increase in production output because of the input put in by the researcher in unraveling the cause of problem. When this problem is solved, it therefore leads to increased knowledge on how things should be done. The use of this knowledge might lead to increase in National output on the long run. However, in spite of the enormous academic interest the subject of human capital and economic growth has generated, several issues relating to the human capital development and economic growth relationship remain up till now unsettled and unclear. One of the most critical among these issues relate to the fact that the empirical relationship between human capital development and economic growth in Nigeria is yet indistinguishable. This stem from the fact that good number of studies that have examined the influence of human capital development on the Nigeria’s economic growth have generated varying outcomes .An instant and handy literatures are the works done by Lawanson, (2009); Ogujiuba and Adeniyi, (2004). Furthermore, while a long run relationship has been established between human capital development and economic growth in Nigeria,the impact of an aggregation of capital expenditures on health Research & Development and education respectively has not been sufficiently addressed by researchers. In addition, apparent omission of R&D, as a part of the independent variables from the available literatures is another reason while this study is being embarked upon and this is an important factor that affects economic growth of any country. Based on the premise above, the study seeks to determine the impact of human capital development on economic growth through government expenditure on Health, Education and Research and Development (R&D) with other macroeconomic variables that affects the growth of the economy.