Gyeongsang University Turnitin Trash Files HUMAN CAPITAL NEXUS AND GROWTH OF NIGERIA ECONOMY CHAPTER ONE INTRODUCTION Background to the Study Government expenditure equally known as public spending simply refers to yearly expenditure by the public sector (government) in order to achieve some macroeconomic aims notably high literacy rate, skilled manpower, high standard of living, poverty alleviation, national productivity growth, and macro-economic stability. It is also expenditure by public authorities at various tiers of government to collectively cater for the social needs of the people. Generally, it has been revealed that public expenditure plays a key role in realizing economic growth. This is because providing good education to individuals is one of the principal avenues of improving human resource quality in any economy. From this perspective, advancing school enrolment may subsequently lead to economic growth. Therefore, education remains the effective way to subdue poverty, illiteracy, underfeeding and accelerate economic growth in the long-term. Much attention has been channeled towards clarifying the relationship between education and economic growth, and so, has led to series of studies by economists over the past 30 years. There is substantial literature to back the fact that correlation exists between the two. (Sylvie, 2018). In line with the views of Hadir and Lahrech (2015), the fact that humans are the most worthy assets remains undisputable in both developed and developing countries. Therefore efficiency in human resource management is pertinent if development must be realized. In this sense, the major gateway to development is adequate investment in human capital which may be described as an individual’s potential economic value in terms of skills, knowledge, and other intangible assets. In order to realize the well-known macroeconomic objective of economic growth, Nigeria being a developing country embarked on some programs in the educational sector with the aim of boosting human capital development. However, these programs have only served as conduits for enriching the corrupt political elite. Given the high prospects of achieving economic growth in Nigeria and the place of human capital development in its actualization, education, therefore, remains a top priority for the Nigeria government as well as concerned researchers. Thus, this study is one among other concerned studies that will attempt to examine economic growth and human capital nexus in Nigeria through education variables. In particular, using education as a measure of human capital, it will attempt to explore the impact of education variables on the growth of Nigeria’s economy. According to Wamboye, (2015), education makes way for vital knowledge, skills, techniques and information for individuals to function in family and society. Education can groom a set of educated leaders to take on jobs in government services, public and private firms, and domestic and foreign firms. The growth of education can provide all kinds of grooming that would foster literacy and basic skills. Though alternative investments in the economy could generate more growth, it must not deviate from the necessary contributions; economic as well as non-economic, that education can make and has made to expediting macroeconomic growth (Clark, 2015). Todaro and Smith in Clark (2015), likewise called attention to the fact that, extension of education lead to an increasingly gainful labor force and provide it with expanded information and abilities, and boost employment and income-earning avenues for educators, schools, and employees. Economic growth, proxied by Gross Domestic Product (GDP), gives numerous advantages which include increasing the general living standard of the masses as estimated by per capita pay (income), making the distribution of income simpler to accomplish, thus, shortening the time span needed to achieve the fundamental needs of man to a considerable majority of the masses. The main source of per capita yield (output) in any nation, regardless of whether it is advanced or developing, is really increment in 'human productivity'. Per capita yield (output) growth is notwithstanding a significant aspect of economic prosperity (Abramowitz, 1981). For the most part, it has been uncovered that individuals are the most important source of productivity growth and economic prosperity. Technology and technological hardware are the results of human inventions and innovativeness. The suggestion of UNESCO, that 26% of yearly planned expenditure (budget) in developing nations should be dedicated to education has become intangible, particularly in Nigeria. Planned expenditure on education in Nigeria ranges from only 5%-7% of total planned expenditure. The impact of the above situation on the economic prosperity of the nation as it concerns human capital development, capacity building, infrastructural advancement, etc, is troubling. On this note, the necessity of a well-thought out plan for rectifying this unwanted situation can't be over stressed. 1.2 Statement of the Problem Sikiru (2011) as cited in Ajibola (2016) rightly pointed out that the role of education in any economy is no longer business as usual because of the knowledge based globalized economy where productivity greatly depends on the quantity and quality of human resource, which itself largely depends on investment in education. Governments continue to increase spending on education with a view toward enhancing the standard of education, build human capacity and attainment of economic growth. Ironically, this effort by government is still a far cry of UNESCO’s recommendation of 26% total annual budget to education, and so, has not yielded the expected results. Thus, researchers sought to understand the relationship between government expenditure on education and economic growth and how they influence each other. These researches on the above subject matter, have given rise to divergent school of thoughts. Over time, Nigeria has indicated willingness to develop education in order to curtail illiteracy and quicken national development. Anyway regardless of the irreproachable evidence that education is key to the improvement of the economy; there exists a wide loop-hole in accessibility, quality and fairness (equity) in education (Ayo, 2014). Empirically verifiable facts in recent years have indicated that the Nigeria education system has continuously turned-out graduates who overtime have defaulted in adapting to evolving techniques and methods of production; due to inadequate infrastructure, underfunding, poor learning aids, outmoded curriculum, dearth of research and development. This has resulted to drastic reduction in employment and the advent of capacity underutilization. This paper assesses growth of Nigeria economy in relation to government expenditure on education and school enrollment from 1981 to 2018. Frequent adjustments and changes in education system in Nigeria, points to the fact that, all is not well with the countries education system. Government have experimented 6-3-3-4, 9-3-4 systems of education, among others. Enrollment in schools forms the main part of investment in human capital in most of the world’s societies (Schultz, 2002). There are several explanations concerning why improvement in scholastic quality is not forthcoming in Nigeria as regards the above subject matter. Researchers disagree on whether changes in education attainment levels alters economic growth rate in the long-term. “In Nigeria, average public education expenditure to total government expenditure between 1981 and 2018 is 5.68 per cent. It ranged between 0.51 and 10.8 per cent during the period under review” (CBN Statistical Bulletin, 2019). However, the major problem therefore, is that despite an increase in the numeric value of budgetary allocation to education in Nigeria over the years, they still fall short of 26 % UNESCO,S recommendation. For instance, 2014, 10.6%; 2015, 9.5%; 2016, 6.1%, 2017, 5.41%, 2018, 7.0% and 2019, 7.2% percent respectively of total annual budget to education. The statistics presented above indicates that investment in education has not produced the desired level of human capital and economic growth in Nigeria. These uncertainties as it relates to government expenditure on education, school enrollment and growth of Nigeria economy gave birth to this research work. Furthermore, most studies relating to the subject matter, conducted analysis on times series data without subjecting these data sets to structural breaks, thereby giving rise to spurious results and therefore, unreliable recommendations. For instance, unit root test with structural breaks were not employed in majority of these studies. 1.3 Research Questions The issues raised above have provoked series of questions which this study attempts to provide answers. These questions include; i. To what extent does government expenditure on education affect growth of Nigeria economy? ii. To what extent does primary school enrollment affect growth of Nigeria economy? iii. To what extent does secondary school enrollment affect growth of Nigeria economy? iv. To what extent does tertiary school enrollment affect growth of Nigeria economy? 1.4 Objectives of the Study The main objective of the study is to access the effect of government expenditure on education and growth of Nigeria economy. Specific objectives of the study are to; i. Access the effect of government expenditure on growth of Nigeria economy. ii. Access the effect of primary school enrollment on growth of Nigeria economy. iii. Access the effect of secondary school enrollment on growth of Nigeria economy. iv. Access the effect of tertiary school enrollment on growth of Nigeria economy. 1.5 Hypotheses of the Study The following hypotheses were tested in this study. i. Government expenditure on education has no significant effect on growth of Nigeria economy. ii. Primary school enrollment has no significant effect on growth of Nigeria economy. iii. Secondary school enrollment has no significant effect on growth of Nigeria economy. iv. Tertiary school enrollment has no significant effect on growth of Nigeria economy. 1.6 Scope of the Study The study covers the time series analysis of government expenditure on education, school enrolment; primary, secondary and tertiary, and growth of Nigeria economy from 1981 to 2018. Based on available data. Justification for this study is on the premise that, time series data used for the study is a current data on government expenditure on education, education enrolment and economic growth in Nigeria. This study used annual data for the period 1981-2018, collected from the CBN Statistical Bulletin (2019) and World Bank databank. Variables employed for the study include; Real GDP Per Capita, government expenditure on education, primary, secondary and tertiary school enrolment. 1.7 Significance of the Study Models of economic growth provide useful predictions that inform decisions made by policy makers. Agreeing with policy options based on inaccurate research studies could undermine government intervention particularly in the education sector. A good perception of the interaction among investment in education, its outcome, school enrolment and economic growth is appropriate policy measure, guarantees human capital development. Thus, a representative model that take cognisance of inter-play among public education expenditure, school enrolment and growth of the economy will lead to adequate disbursement and utilization of government funds. The outcome of this research will serve as a tool for policy makers in the Ministries of Finance, Education and the National Planning Commission including regulatory agencies not mentioned here. It will also serve as a reference material for subsequent research work in this field. 1.8 Limitation of the Study This research x-rays Government Expenditure on Education, school (primary, secondary and tertiary) enrolment as they relate to Growth of Nigeria Economy. Time series data covering the period 1981 to 2018 is used for this study. A study undertaken in 2020, but can not access 2019 data on the variables used, stand as one of the limitations, since lag periods are essential in policy implementation. Data availability, genuineness and accuracy of same, time and financial constraints, constitute limitations to this research work. Effect of corruption on government expenditure and outbreak of Corona virus, resulting to closure of tertiary institutions in Nigeria, also constitute limitation to this study. 1.9 Organization of the Study This research work comprises of five (5) chapters, these includes; Chapter one: this consists of background to the study, Problem Statement, research questions, research hypothesis and scope of the study. Chapter two: consisting of conceptual framework, theoretical review, review of related literatures and theoretical framework. Chapter three: explained the methodology this research adopted. Chapter four: presentation of results and discussion of findings. Chapter five: consists of summary of findings, conclusion, policy recommendation, contribution to knowledge and suggestion for further studies. CHAPTER TWO LITERATURE REVIEW AND THEORITICAL FRAMEWORK 2.1 Conceptual Review 2.1.1 Government Government is the sector of the economy focusing on giving different public services. Its structure differs by nation, yet in many nations, government involves such services as infrastructure, military, police, public travel, government provided education, alongside medical services and those working for the public sector itself, like, elected authorities. The government may offer types of assistance that a non-taxpayer can't be barred from, (for example, street lighting), goods which aids all of society instead of benefiting only one person. Finances for government goods and services are generally obtained through various techniques, including taxes, charges, and through monetary transfers from different tiers of government (for example from federal to state government). Various governments from around the globe may utilize their own strategies for financing public goods and services. 2.1.2 Government Expenditure Government Expenditure refers to government spending both capital and recurrent. For the purpose of this study we limited our scope to government educational expenditure in Nigeria. The theory of government expenditure is the theory of the costs of availing goods and services through planned spending (budget). There are two ways to deal with the subject of growth of government, precisely, the expansion in total size of government spending and the expansion of government in terms of economic magnitudes. Government expenditure is spending made by the public sector (government) of a nation on aggregate needs and wants, for example, pension and arrangement of infrastructure, among others. Until the nineteenth century, government speding was constrained, as free enterprise theorists believed that financial resources left in the private sector could lead to higher returns. In the twentieth century, John Maynard Keynes advocated the job of government spending in influencing levels of wages and income distribution in the economy. From that point forward government spending has demonstrated an expanding pattern. The public expenditure trend of the government of a nation is essentially the manner in which assets (resources) are distributed to the various segments of the economy where spending is required. It is exemplified in the government’s ways of spending money. In analyzing the trend of government spending hence, it is critical to realize that under a federal system of administration, government job in dealing with the economy is the joint duty of the different tiers of government (Eze and Ikenna 2014). 2.1.3 Human Capital By and large, human capital is characterized as all skills that are indistinguishably helpful to numerous organizations, including the training organization. Industry-specific skills, conversely, foster efficiency (productivity) just in the industry in which the skills were obtained. In a serious market setting, laborers consistently get a pay that approaches their minor profitability and in this manner, on account of general human capital, laborers win a similar compensation any place they work. 2.1.4 Economic Growth As per Haller (2012), economic growth or economic expansion means the way toward expanding the size of a country’s economy, its macro-economic indicators, particularly the per capita GDP, in an incremental yet not mandatorily linear course, with beneficial outcomes on the socio-economic sector. IMF (2012) perceives economic expansion as the expansion in the market worth of commodities created in a country over a period of time after discounting for inflation. The rate of increment in real Gross Domestic Product is often used as an estimate of economic expansion. In the perspectives of Kimberly (2012), economic expansion is an expansion in the creation of commodities. Any expansion in the worth of a nation’s created commodities is likewise characterized as economic expansion. Economic expansion means an expansion in real GNP per unit of labor input. This relates to labor efficiency variation with time. Economic expansion is routinely estimated with the pace of increment in GDP. It is often estimated in real terms (deducting the impact of inflation on the cost of all commodities created). Growth improves the living standard of the individuals in that specific nation. As per Jhingan (2004), one of the greatest aims of money policy approach as of late has been quick macroeconomic expansion. He thus, characterized economic prosperity (growth) as the event whereby the real per capita earnings (income) of a nation increments over a significant stretch of time. Economic expansion is estimated by the expansion in the quantity of commodities created in a nation. An expanding economy creates more commodities in each subsequent timespan. In this manner, growth happens when an economy's capacity to produce increases which in turn, is utilized to create a greater quantity of commodities. In a more extensive perspective, economic expansion means increasing the living standard of individuals, and reducing disparities in earnings. 2.1.5 Gross Domestic Product - GDP In