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AN ECONOMETRIC ANALYSIS OF GOVERNMENT

EXPENDITURE ON HUMAN CAPITAL DEVELOPMENT

AND ECONOMIC GROWTH IN NIGERIA

AN M.Sc PROJECT PROPOSAL

BY

EZECHUKWU UCHENNA

PG/M.SC/2010/57503

Email: uchenna.ezechukwu@yahoo.com

MOBILE +2348037400466

DEPARTMENT OF ECONOMICS

UNIVERSITY OF NIGERIA, NSUKKA.

SUPERVISOR Dr (Mrs.) S I MADUEME

NOVERMBER 2012

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CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The belief that human capital is an engine of growth rests on the implementation of quality

and quantity of resources devoted to that sector in any country , as it stood out as generally

acclaimed impetus for the actualization of sustainable growth and development in an

economy. These have been the main targets of the developing countries to raise their welfare,

as when compared to the developed economies, will meet standard. This is because when you

ask about the major determinants of economic growth in an international perspective, an

economist and the World Bank, is likely to point out the importance human capital formation

play in an economy. Taking a closer look at this argument, it becomes clear how important the

presumed role of human capital is at the macroeconomic level. The developed nations like

Spain, America and a few other Asian countries like Taiwan, South Korea and China` have

long realized the importance of human capital as strategic effort towards economic

development of their nations and have invested huge resources in that area (Owolabi and

Okwu, 2010). Hence policy makers in the developing world need to focus on human capital

formation and should carefully devout a large amount of their resources in that area.

The past half century or so has witnessed unprecedented growth and development in

human capital in both developed and developing countries, while in most measures they have

improved more dramatically in developing countries. As a result of that, there has been some

international convergence in these measures (Todaro and Smith, 2009). Some of the generally

agreed causal factors responsible for the impressive growth of the economy of most developed

and the newly industrializing countries are an impressive commitment to human capital

formation (Adedeji and Bamidele, 2003; World Bank, 1995). This was largely achieved

through increased knowledge, skills and capabilities acquired through education and health by

all the people of these countries. Hence it is important to assign greater emphasis on the role

of human capital as a major contributor to economic growth and development in the world

economy. However what is still debatable is, what factors should be considered as human

capital formation?

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Human capital formation refers to ‘’the process of acquiring and increasing the number of

persons who have the skills, education and experience that are critical for economic growth

and development of a country’’ (Okojie 1995:44). While human development is a process of

enlarging people’s choices, including living a long and healthy life, being educated, and

having access to resources that are essential to achieving decent standard of living (Human

Development Report, 1990). One of the early researchers in the area of relevance of human

capital resource in growth process was Schultz (1961). He identified five ways by which

human resources can be developed to include: health facilities; broadly conceived to include

all expenditure that affect the life expectancy, strength and stamina, and the vigour and vitality

of the people; on-the-job- training; formally organized education at the elementary, secondary,

and tertiary levels; study programmes for adults that are not organized by firms, including

extension programmes notably in agriculture and migration of individuals families to adjust to

changing job opportunities. This view is corroborated by the (United Nation Economic

Commission for Africa, 1988) and (Awopegba, 2002) when they argued that human capital is

the knowledge, skills, attitudes, physical and managerial efforts required to manipulate

capital, technology, land and materials to produce goods and services for human consumption.

This human capital is often conceptualized as an aggregate function including both health

and education (Todaro and Smith, 2003), As Lawanson (2009) had pointed out, health and

education as two closely related human [resource] capital components that work together to

make the individual more productive. Hence, 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. Therefore, both components are equally important because of their close

relationship. For example, government expenditure on health and education raises the

productivity of labor and increase the growth of national output. Providing people with better

education and health will satisfy their needs, and improve their productivity in such a country.

The quest for human capital development has been a major cornerstone of our integrated

development effort in Nigeria. At the aggregate level, a better educated and healthy workforce

is thought to increase the stock of human capital in the economy and increase its productivity .

It is critical for the development of human capital and the enhancement of the productivity

and competitiveness of the territory. While the recent period of economic growth has resulted

in significant improvements in government expenditures and general social wellbeing of the

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population, there is growing concern over the ability of the relevant social services (education

and health) to cater efficiently for the needs of the larger population.

Government expenditure on human capital (such as education and health care) has been

generally considered as the main distributive policy instrument of any government, especially

by the developing countries (Bourguignon and Luiz, 2003). Similarly health is an important

element to the nation as it raises the expectancy of life which means larger returns to the

education development and growth as working life of the individual expands (White, 1975).

Analyzing government expenditure on education and health care in human capital

development and its effects on economic growth will be the key to understanding the rationale

for the investment in the sector, being as necessities, basic and compulsory needs of human

population. Greater attention should be giving to human capital in its own right, even in

emerging economies, because the rationale for investing in human resources centered on the

belief that human resources play a crucial role in the process of economic growth and

development. So national government needs to spend more on education and health but how

much to spend and the extent of its impact on the economy is yet to be ascertained. Thus this

calls for an empirical investigation.

1.2 Statement of problem

Good education and better health care should be the primary objective of any committed

government, because of its contribution on human capital development as endogenous

theories postulate that human capital spurs economic growth. It is perhaps in recognition of

this that academic researchers and policy makers have been preoccupied with analysis of

government expenditure on education and health as a measure for human capital development.

As a matter of fact, the role of education and health in any economy is more crucial today than

ever before because of the knowledge based globalize economy. Such attention is also rooted

in the fact that productivity greatly depends on the quantity and quality of human resources,

which itself largely depends on investment in education and health. So the question as to

which extent government expenditure on human capital (education and health) causes

economic growth? Has been a basic concern for economic researchers.

Spending by the various regimes in Nigeria in most sectors, especially the social sectors

seem to remain inadequate. It is this inadequacy of investment in the human capital that

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impedes the growth in the under-developed countries (Lekhi, 2008). Nigeria inclusive, then

when compared the condition of the human capital development in Nigeria, it looks much

feeble. However, the state of the economy of Nigeria is rendered more unstable because of the

different political regimes that have prevailed in the country for over four decades in terms of

expenditure pattern towards human capital development. Education and health are very

relevant to human capital development, but the sectoral allocation to them during military

regimes and civilian regimes exhibits some fluctuation in the investment pattern. With the

advent of democracy in 1999, the federal government allocation to education and health has

been on the increase and seems to be much higher than the average in the years of military

regimes, This inconsistency in channeling of funding of government expenditure on education

and health sectors has generated problems of shortage in human capital development in

Nigeria (Durosaro, 2000). As a result of these, the indices of health and education including

infant and maternal mortality rates, life expectancy at birth, population per physician, adult

literacy rate, gross primary and secondary enrolment ratio have been low in Nigeria. In the

same vein, the level of resource commitments to health and education compare very

unfavorably with the situation in other developing countries. The most pressing issue has to

do with whether such expenditures have any significant improvement in human capital

development and whether they have translated into the growth of the economy. This is

worrisome and poses a serious threat to achieving MDGs 2015 and vision 2020 agenda.

Given the current emphasis on education by the United Nations (UN) and MDGs of

achieving education for all by the year 2015, Nigeria is still lagging behind. According to

Central Bank of Nigeria (CBN, 2000), poor financial investment has been the bane of

Nigerian education system to the extent to which the budgeting allocation has been very low

compared to others. Available statistics from CBN statistical report of various years show that

government expenditure on education and health have continued to fluctuate in Nigeria, as

well as the characteristic pattern of the government’s allocation to education and health in

Nigeria as a percentage of the total budget has revealed inconsistency. That is, health and

education expenditure were not considered as policy targets in the overall budgeting

(Lawanson, 2009). With this we tend to ask what has been the variation between the different

regimes of government in Nigeria via expenditure pattern on human capital development.

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The justification for higher government spending is often based on the impact on

individual’s life time income. According to Jhingan (2002) lack of investment in human capital

has been responsible for the slow transformation of the developing countries compared to those

in other developed countries. Thus emphasis on increasing expenditure on education and

health is generally justified on the basis that such spending increases enrollment rate in

schools, literacy level in that economy and reduces the impact of diseases on the productive

life of the population, as better health improves expectation of life which increases high life

expectancy in that economy. Despite the effort of the government to boost its expenditure on

human capital development the outcomes are still questionable. This is particularly worrisome

as this work tends to answer the following questions:

1 To what extent has the government expenditure – education and health on human

capital development impacted on economic growth?

2 What is the nature of the relationship between government expenditure – education

and health on human capital development outcomes?

3 Is there any significant difference in human capital development – education and

health in military and civilian regimes?

1.3 Objectives of t he study

The broad objective of this study is to analyze government expenditure on human capital

development in Nigeria. The specific objectives that will guide us in this research study are;

1 To estimate the extent to which government expenditure on health and education has

impacted on economic growth in Nigeria.

2 To determine the causal link between government expenditure (education and health)

and human capital development outcomes in Nigeria

3 To determine the differences between impacts of government expenditure on health

and education on economic growth in democratic and military regimes in Nigeria.

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1.4 Research hypothesis

The following hypothesis will be tested;

Ho; Government expenditure on human capital development has not impacted

significantly on economic growth.

Ho; There is no causal link between government expenditure on human capital

development outcomes in Nigeria

H0; There is no significant difference in the impact of government expenditure on

health and Education on economic growth in military and civilian regimes in

Nigeria.

1.5 Significance of study

This work will produce an updated literature which will be used as an important material

for future researchers in this area and as well as assist students in the provision of a functional

framework on which future research on this area can be carried out. Also the result of this

study will be informative as to whether the existing investment in human capital development

is productive. This work will also be of great importance to the government which has in its

hands the authority and responsibility over important input indicators of human capital

development, Also the results of this study will be helpful to policy makers in designing

appropriate policies aimed at utilizing the human resources of the country, giving priority to

the development of human capital. It will also show which regime (civilian or military)

impacted more on economic growth through their expenditure pattern, which the information

will be useful for planning and policy making.

1.6 Scope of study

This study will focus on Nigeria; the scope will be limited to the education and health

sectors as important components of human capital. The variables of interest will be: federal

government capital and recurrent government expenditures on education and health, gross

enrollment rate in primary, secondary, tertiary educations, literacy rate, infant mortality rate,

life expectancy and Gross Domestic Product (GDP). The study will cover the period 1970 –

2011. Military regimes will cover 1970-1978, 1984-1998 and democratic regime will cover

the period from 1979-1983, 1999 - 2011.

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CHAPTER TWO

LITERATURE REVIEW

2.1 CONCEPTUAL FRAME WORK

Government expenditures refer to the expenses that the government incurs for its own

maintenance, for the society and the economy as a whole. Government spending reflects the

policy choices of government; this expenditure is classified under capital and recurrent. This

government spending toward education and health is driven by the objective to positively

affect growth through improvement on outcome such as; school enrolment, primary,

secondary and tertiary and literacy rate on the part of education and life expectancy, infant

mortality rate and so on, on the part of health. Using capital and recurrent expenditure on

education and health provides an insight into the investment priorities of government while

the enrolment and literacy rate are chosen because these measures are appropriate for

assessing the accumulated achievement of a country or for estimating the contribution of

expenditure on education to economic growth. On the part of health, the two variables are

chosen because government health expenditures are not monolithic and often consist of

budgets for sub-sectors within the health care sectors such as primary care, secondary care,

etc, infant mortality rate are considered as an example of an outcome in primary care, and life

expectancy as an example of an outcome from secondary care while the commonly used

measure for (health) human capital is the life expectancy. Afterward the outcomes could have

direct effects in the same and opposite directions and that spurs economic growth. Life

expectancy is defined by the United Nations as the average number of life years since birth

according to the expected rate of mortality by age. Jacobs and Rapaport (2002) shows that

analysts prefer to focus on a survival time indicator because it emphasizes the duration of

health status and places implicit importance on a person’s well-being. For example, Anand

and Ravallion (1993) using cross-sectional data for 22 developing countries in 1985 find that

health expenditure raises life expectancy.

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Figure 1 explains a flowchart of inter-connectivity of choice variables.

Source; Field work (2012)

2.2 THEORETICAL FRAMEWORK

2.2.1 THE THEORIES ON INCREASING PUBLIC EXPENDITURE

Public expenditure on infrastructural facilities plays an important role in stimulating the

economy. The mechanism through which this government spending on public infrastructure

affect the pace of economic growth depend largely upon the precise form and size of total

public expenditure allocated to economic and social development projects in the economy. In

general, different theories on the relation can be roughly classified into different economic

schools of thought, like: THE KEYNESIAN vs CLASSICAL VIEW AND WAGNER’S AND

WISEMAN - PEACOCK THEORY

2.2.1.1 Keynesian vs classical view, Keynesian view assumes that government expenditure

is an instrument of the state in exerting fiscal policy and with this instrument influences

economic growth while the Classical and the Neo classical Economists do not see any reason

why government should intervene in the economy. Keynesian school of thought advocates the

use of fiscal instruments to stimulate economic activities in time of recessions. While the

Classicists are of the opinion that the market forces will automatically bring the economy to

long run equilibrium through adjustment in the labor market. Keynesian argued that market

Government expenditure

Allocation compositionCapital and Recurrent HealthEducationOutcome Outcome

Primary, secondary and tertiary enrollment

Literacy rate

Life expectancy

Infant mortality

Economic growth

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mechanism regulation of the economy will fail to propel the economy back to equilibrium in

the face of any maladjustment due to the rigidities inherent in the labor market. Thus,

Keynesian thought, prescribed expansionary fiscal policies to avoid long recessions, because

of the effects of crowding out phenomena, that there is the tendency for public goods to be

substituted for private goods; this will create a gap in the private spending on some economic

activities like education, health and other goods and services. The Classical school found

fiscal policy to be ineffective, that, the pressure of the public sector to increase their spending

may compel them to source for financial resources in the credit market. This will result into

higher interest rate which may hamper private investment.

2.2.1.2 Wagner and Wiseman-Peacock theory, Wagner revealed that there are inherent

tendencies for the activities of different layers of a government (such as central, state and local

governments) to increase both intensively and extensively. He maintained that there was a

functional relationship between the growth of an economy and government activities with the

result that the governmental sector grows faster than the economy. However Nitti (1903) not

only supported Wagner’s thesis but also concluded with empirical evidence that it was equally

applicable to several other governments which differed widely from each-others (Nitti, 1903).

All kinds of governments, irrespective of their levels (say, the central or state government),

intentions (peaceful or warlike), and size, etc., had exhibited the same tendency of increasing

public expenditure. But on the other hand, Wiseman and Peacock in their study of public

expenditure in UK for the period 1890-1955 revealed that public expenditure does not

increase in a smooth and continuous manner, but in jerks or step like fashion. At times, some

social or other disturbance takes place creating a need for increased public expenditure which

the existing public revenue cannot meet.

2.2.2 EXOGENOUS AND ENDOGENOUS THEORIES ON HUMAN CAPITAL

2.2.2.1 The Traditional Neoclassical Growth Theory (Exogenous) Traditional

neoclassical growth models championed by Solow and Swan in the 1950s attribute output

growth to the impacts of physical capital and population, neglecting human capital as an

important input. The notion of growth as increased stock of capital goods was codified as

exogenous growth model; which involves a series of equation which showed the relationship

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between labor time, capital goods, output and investment. This model, by Solow and swam

was the first attempt to model long-run growth analytically. This model assumes that

countries use their resources efficiently. The predictions of this classical model were:

increasing capital relative to labor creates economic growth; poor countries with less capital

per person will grow faster because each investment in capital will produce high return;

economies will eventually reach a point at which no new increase in capital will create

economic growth. This point is called Steady state. This model also notes that countries can

overcome this steady state and continue to grow by investing new technology. The process by

which countries continue to grow is exogenous and represents the creation of new technology

that will allow production with fewer resources. Two major drawbacks of this theory include:

the impossibility of analyzing the determinants of technological progress within its

framework; the failure of the model to explain the large differences in the residuals across

countries with similar technologies. These led to a widespread discontentment with the

neoclassical models (Todaro, 2003).

2.2.2.2 New Growth Theory

The theory much better suit this work is endogenous growth theory. This is because of

the inclusion of human capital in the model as the model predicts that the economy can grow

forever as long as it does not run out of new idea. Since the literature on endogenous growth

focuses on the dynamic impacts of human capital stock on growth; it proves to be reasonable

to state that government expenditures as the integral part of human capital may have long-run

effects on economic growth. Thereby, the insights of endogenous growth theory, in which

provision of human capital adds much to the rate of growth of economies rather than the

initial level of per capita product of countries is of much more relevance to the disaggregated

analysis of impacts of public expenditures on economic growth (Barro and Sala-i- Martin,

1990). This will form the basis of our study, because it can be inferred that endogenous

growth theory indirectly provides the government with a theoretical justification in order to

actively engage in projects to promote growth process in the context of expenditures on

human capital heading for augmenting output per capita through provision of sound health

and education services.

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The endogenous growth theory or new growth theory is developed as a reaction to the

flaws of the neoclassical (exogenous) growth theory. Romer endogenous growth theory was

first presented in 1986 in which he took knowledge as an input in the production function. The

major assumptions of the theory are: increasing returns to scale because of positive

externalities; human capital (knowledge, skills and training of individuals) and the production

of new technologies are essential for long run growth; private investment in research and

development is the most important source of technological progress; knowledge or technical

advances are non-rival good. In the New growth theory, the savings rate affects the long run

economic growth because in this framework, a higher level of savings and capital formation

allows for greater investment in human capital development. The model predicts that the

economy can grow forever as long as it does not run out of new ideas or technological

advancement.

Romer states the production function of a firm in the following form:

Y = A(R) F (Ri, Ki, Li)

where:

A - Public stock of knowledge from research and development (R),

Ri - Stock of results from the stock of expenditure on research and development.

Ki - Capital stock of firm i

Li - Labour stock of firm i

The Ri actually represents the technology prevalent at the time in firm i. Any new research

technology spill over quickly across the entire nation. Technological progress (advancement)

implies the development of new ideas which resemble public goods because they are non-

rival. When the new ideas are added as factors of production the returns to scale tend to be

increasing. In this model new technology is the ultimate determinant for long run growth and

it is itself determined by investment in human capital development. Therefore, Romar takes

investment in human capital as endogenous factor in terms of the acquisition of new

knowledge because in this framework, investment in education and health allow for greater

growth in human capital development.

The first generation of endogenous growth models, in which the rate of technological

progress varies from country to country depending on local economic conditions, predicts a

permanent effect on the growth rate. The growing focus on the Millennium Development

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Goals (MDGs) has further highlighted the importance of making tangible progress in

indicators of human capital measured on the basis of key education and health indicators

(MDG, 2008; Howitt, 2005). Recently a number of millennium development goals (MDGs)

are directly related to education and health, which are to: achieve universal primary education;

reduce child mortality; improve maternal health; combat HIV/AIDS, malaria and other

diseases. All these MGDs have strong linkages to education and health. The overarching goal

is the eradication of extreme poverty, for which the development of human resources through

education and health is key. By endorsing these goals, countries essentially recognize

education and health as priority areas for investment action and policy formulation.

2.3 THEORITCAL LITERETURE

2.3.1 The concept of human capital

There are different definitions and views of human capital by different scholars, those

viewing human beings as capital rooted in economic thought has been looked at by many

economists including Adam Smith (1776). He defined human capital as all the acquired and

useful abilities of all inhabitants of the country. Irving Fisher (1906) looked at the concept of

human beings as capital while Marshall (1890) however, did not believe in treating human

beings as capital, instead rejected the notion of "Human Capital" and defined Capital as "all

stored up provision for the production of material goods, and for the attainment of those

benefits, which are commonly considered as part of income". Capital to him consists of

knowledge and organization: and of this some part is private property and the other part is not

(Marshall (ibid), pp 114 -115).

Human capital witnessed a revival in the U.S economic journal in the 1960's as a result of

many economists' efforts such as Schultz (1971) who is considered as the founder of the

human capital theories. Schultz observes that the failure to treat human resources explicitly as

a form of capital, as produced means of production, and as the product of investment, has

fostered the retention of the classical notion of labour as a capacity to do manual work

requiring little knowledge and skill. Schultz (ibid) noted that by investing in themselves,

people can enlarge the range of choices available to them and enhance their welfare. For him

the concept of capital consists of entities that have the economic property of rendering future

services of some value and should not be confused with capital as a fungible entity

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The concept of human capital refers to the knowledge, skills, attitudes, physical and

managerial effort required to manipulate capital, technology, and land among other things, to

produce goods and services for human consumption (UNECA, 1990).Romer (1994) defines

human capital as a factor of economic growth, which captures the abilities, skills and

knowledge of workers. Adamu, (2002) revealed that human capital refers to the abilities and

skills of human resources of any country. This shows that human capital is a form of resource

that can be acquired, built up and developed, while Igun (2006) defines human capital as the

total stock of knowledge, skills, and competence’s innovative abilities possessed by the

population.

2.3.2 Human capital development in Nigeria

The urge in Nigeria to invest in human capital development could not have been for the

sake of investment alone, but in line with the national philosophy. At best, for any meaningful

and rapid transformation to take place in Nigeria, it is considered more reasonable to

concentrate on the improvement and development of the available human resources

(Akinbote, 1988). In Nigeria, effort toward commitment to investment in human capital

began in 1959, which was immediately after her independence when Ashby Commission was

set up to conduct an investigation into Nigeria’s needs in the field of post-school certificate

and higher education for the subsequent 20 years. The Commission documented report which

was submitted in 1960 with the help of leading and seasoned expert in human resource

matters, Frederick Harbison. That report led to massive investment in education which was

then seen as the only means of human capital formation.

Investment in those areas is well appreciated and understood in an economy that aspires

to attain sustainable growth, because investment in these human resources means expenditure

on education and health and other social services in general. Hence any country that does not

pay special attention to human resources development should not expect to grow and develop.

In recent times the importance of human resource development for Nigeria has been stressed

if the country 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.(Owolabi and

Okwu, 2010).

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The government set up National Economic Empowerment and Development Strategy

(NEEDS), which is presently Nigeria’s development plan documented and stipulates a goal of

increasing government’s budgetary allocation to health, road, security, education and so on in

its effort to boost human capital sectors, The programme include; to address the crucial issues

to improve education and health infrastructure and expand institutional capacity to produce

quality manpower which will expand total school enrolment. As a result of that, the federal

government recently licensed more federal universities in effort to absorb all candidates

seeking admission into national universities. This shows commitment on the part of the

Nigerian government to develop her human resource. Furthermore, additional private

universities had also been licensed and more are still expected to be given license since the

number of students seeking admission into tertiary institutions is on the increase in the

country and effort to absorb them lead to this policy.

The health care in Nigeria is a shared responsibility of all the three tiers of government.

The basic health care are primary, secondary and tertiary health, the primary health care is

seen as the equity-oriented health and development strategy focusing on the most health

intervention for the most common health problems in communities. With the sole

responsibility for educating the communities with health problems, preventing and controlling

of locally endemic diseases and promotion of food supply and nutrition’s etc. While the

secondary health care exist to provide specialized services to patients referred from the

primary health care level. Secondary health care is expected to provide administrative support

to and supervision to subordinate, while the tertiary health care which is the apex body

specialized in providing care for specific cases and conditions. As better health care is a

primary human need, fifty percent of economic growth differentials between developed and

developing nations are attributable to ill-health and low life expectancy (World Health

Organization, 2005).

2.3.3 Profile of Federal Government Expenditures on Education and Health Sectors in

Nigeria

National development agenda are premised on economic growth which is a necessary

condition for development. However, the growth in the public sector appears to apply to most

countries regardless of their level of economic and political development (Essien & Bawa,

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2005). The aim of government is to attain better allocation and distributional equality through

improved disbursement of public goods. Similarly, the Nigerian government’s expenditure

performance in education and health care sectors has experienced periods of improvement and

decline. Good performance in these areas is essential to development and numerous

governments recognized this in their policy statements

Data on federal government expenditure on human capital (health and education) in

Nigeria is not mute for the period 1970 – 2011. Public total health expenditure in the 1970s

witnessed fluctuating trend. In 1970, it stood at N25.18 million and decline in 1973 to N21.36

million. It later rose to N76.99 million, N158 million in1975 and 1980 respectively, but it

declined sharply a year later to N141.82million. It rose again to N587.7 million in 1990 and

thereafter continued to fluctuate with a declining trend until 1996 when it rose to

N2098.08million. It stood at N15245.28 million in 2000, N34187.74 million in 2004 and

N55675.33 million in 2007 and N90213 million in 2009. While on the part of education

sector, the federal government spent a total of N25.84million and N963.77million in1970 and

1975 respectively and in 1979 expenditure decline to N764.53 million. By 1980, total

educational expenditure increased to N2612.51 million, decreasing to N1412.6 million 1985

and N918.11 a year after, while in 1990 it increased to N4498.8 million and N18962 million

in 1990 and 1995 respectively, while in 2000 and 2006 expenditure stood at N85921.84

million and N165975.86 respectively.(CBN,2010). Till date expenditure on education sector

has been on the increase, this might be attributed to the effort of the government to meet up

with 26 percent recommended by UN. Also the governments of Nigeria, over the years have

been making frantic efforts at ensuring that there is an increase in the level of public

expenditure on health, as poor health conditions harm the productivity of the citizens, thus, the

level of government expenditure on health determines the ultimate level of human capital

development which eventually leads to better, efficient and productive investment in other

sectors of the economy (Akran and Khan, 2007).

2.3.4 The Role of Education as Component of Human Capital

The role of education in human capital development and growth of Nigeria economy has

been underscored in many studies. Education, as a key component of human capital formation

is recognized as being vital in increasing the productive capacity of people. It increases

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knowledge which helps to produce more output in relatively smaller time and also it is

intuitionally suggested that an educated person could learn much faster. Sen (1985) opined

that education helps provide human capabilities, which is “ important and individual power to

reflect, make choice, seek a voice in a society and live a better life” as such government

should increase awareness programme in the education sector and invest in that area. World

Bank (2000/2001) showed that investment in education and other forms of human capital

particularly health is an important element of poverty strategy, hence, increase in the level of

education will also lead towards better health due to an increase in the awareness of the

benefits of healthy living, which in turn increases the output. However, education also

enhances the labor force participation in an economy due to the higher labor force

participation rate, along with education, the role of experience is also very important in

productivity growth, as experience generally reduces the chances of errors and increases the

output in a given time period.

In effort to boost education in Nigeria, the report of Ashby Commission came up with

expansion of the educational sector to 6-3-3-4 education system in 1984. Where pupils now

spent 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.

With the Nigerian government recognition of the role of educational human capital in

economic development, it embarked on quantitative and qualitative measures of expansion of

educational facilities at all levels because of its presumed advantages. The Federal

government is principally responsible for the funding of tertiary institutions; secondary

education is mainly a state responsibility though there are some federal secondary schools.

Primary education is a local government responsibility. The level of expansions in the

educational system as a result of the outcome of government vigorous expenditure from 1970

– 2011 are shown below.

The gross enrolment rate in primary school were 40 percent in 1970, 48.26 percent in

1976 and 93.80 and 104.41 percent in 1980 and 1984 respectively there were declining

thereafter to 86.62 in 1995 and 1999 and 2007 enrolment rate were 93.00 and 94.18 percent

respectively, while at 2010 enrolment stood at 83.28 percent. The secondary enrolment was

4.26 percent in 1970; it raised further to 13.45 and 28.90 percent in 1980 and 1985

respectively, enrolment rate declined to 23.88 percent in 1989, rising afterwards to 31.89

18

percent in 2003, in 2005, it stood at 34.44 percent while 2008 and 2010, secondary enrolment

had risen steadily, and stood at 38.99 and 44.05 percent respectively. The tertiary education

sector enrolment rate was 0 .71 percent in 1975, this later rose to 1.78 and 3.35 in 1980 and

1985 respectively. While from 1999 enrolment stood at 6.01 percent they had been an increase

in 2003, 2007 from 9.73 to 10.26 percent, (UNESCO, 2010). Hence a close look at this trend

shows that Nigeria government from 1999 till date, have underscored the need to invest

substantially in the educational sector, this is noticeable improvement that should be

sustained. As there is evidence those higher rates of school enrolment raise growth ( Mankiw

et al., 1992).

2.3.5 The Role of Health as a Component of Human Capital

It have been noted that healthier individuals might affect the economy in four ways: (a)

they might be more productive at work and so earn higher incomes; (b) they may spend more

time in the labor force, as less healthy people take sickness absence or retire early; (c) they

may invest more in their own education, which will increase their productivity; and (d) they

may save more in expectation of a longer life—for example, for retirement—increasing the

funds available for investment in the economy (Bloom, 2000 and Canning, 2003). Health is

generally connected with economic growth and sustainable development; because of the

evidence that investing in health brings substantial benefits to the economy. Considering the

indices of health status of Nigeria, there seems to be some fluctuations since independence.

During the early 1970s, Nigeria was recorded among the promising economies in Africa, but

today, corruption has purge the country into high level of poverty, high cost of living, low

average life expectancy, high rate of communicable diseases and increase in mismanagement

of her resources etc. A lot of resources has been spent on the health sector, but the most

pressing issue has to do with, whether such expenditures have any significant impact on the

health of the nation’s population and whether they have translated into the growth of the

economy (Dauda, 2011).

In a study on government spending on health as a percentage of GDP embarked for some

selected African countries, it was ascertain that Nigeria devote the least percentage of her total

expenditure to health when assessed with other selected African counties. For instance in 1997

Nigeria devoted only 2.8 percent of total spending of her GDP to health sector financing. This

19

figure in 1999 rose to 3.0, while a further increase of 3.4 percent was noticed in 2000. While

Cote D'ivore and Ghana within the same period of 1997 and 1999 devoted 6.2 and 4.1 percent

respectively to health sector financing, the spending on health financing for Cote D’Ivore was

sustained throughout the years up till 2000, while Ghana was reported to have increased her

budgetary spending for health from 4.1 percent as noticed in 1997 to 4.7 percent in 2000

(WHO Report, 2004).

It is assumed that improvement in health leads to improvement in life expectancy which is

a robust indicator of human capital development, a simple channel through which health affect

human capital development is by improving living conditions. As living conditions improve,

human longevity is expected to improve and vice-versa. Taking life expectancy of Nigeria

from 1970 to date for example, from the World Development Indicators (WDI), Nigeria life

expectancy as at 1970, stood at 40 years. It increased to 45 years in 1980; by 1990 it stagnated

at 45 years 10 years after. marginal increase were noticed by 2000 to 46 years, by 2005, it

was given as 47 years and still remained at 47 years by 2009 notwithstanding the huge

expenditure by the government on health.

An increasing life expectancy at birth by 10% will increase the economic growth rate by

0.35% a year, as 50% of the growth differential between rich and poor countries is due to ill-

health and life expectancy (see Commission on Macroeconomics and Health, 2001)

According to Bloom and Canning (2008), “health is a direct source of human welfare and also

an instrument for raising income levels. The level of productivity and growth in an economy

will be greatly hampered by ill-health or prevalence of diseases in such an economy. This is

because the likelihood exists that healthy individuals have the tendency to think rightly, be

more efficient and obtain higher productivity. There is consensus that expansion in the skills,

knowledge, and capacities of individuals, increasing human capital, is critical for economic

growth and poverty reduction. However, despite increase in government health and education

spending in recent decades as shares of both GDP and total government spending, human

capital investments, particularly in Sub-Saharan Africa, are performing poorly with low

school enrollments and growth in child labour often performed at the expense of education

and inadequate health.

20

2.4 EMPIRICAL LITERATURE

There has been numerous research works on human capital development on cross-country

and country specific studies, these macro studies continued to produce inconsistent and

controversial results (Pritchett 1996). Reason being there are three streams of studies on

human capital development. The first and second streams studies usually focus on either

component of the human capital and growth nexus, education or health and the last streams

focuses on both components.

Few of those works includes: Knowles and Owen (1997), Abbas (2001), Hamoudi and

Sachs (1999), Aka and Demount (2008), Mostafizur (2011) for other countries and Owolabi

and Okwu (2010), Lawnson (2009), Maku (2009), Chete and Adeoye (2002) for Nigeria are

some of the notable papers in this respect. In the study of the joint development of

government expenditures and economic growth in 23 OECD countries conducted by

Lamartina and Zaghini (2007) showed that there is a structural positive correlation between

public spending and per capita GDP. Thus an increase in government’s spending on human

capital development is expected to culminate in an increase of per capita output. The impact

of an aggregation of capital and recurrent expenditures on health and education and its

outcomes has not been sufficiently addressed by researchers.

Knowles and Owen (1997) formulated a structural growth equation that incorporated

education and health as labor- augmented variables in aggregate production function and

assessed the impact of education and health on economic growth in the effective labor

empirical growth framework. They used the cross-section data collected from 77 countries

grouped in different sub-samples; they measured education and health by average years of

schooling and life expectancy at birth, respectively. Then, they applied non- linear instrument

variables (NLIV) estimating methods and their result suggests that a strong positive

relationship exists between health and economic growth while the effect of education was

found to be insignificant

Abbas (2001) empirically investigated the affect of human capital on economic growth in

Pakistan and Sri-Lanka. The production function used in the study was a standard human

capital augmented production function in which the output growth depends on labor, physical

21

capital and human capital. The ordinary least square (OLS) method was applied on an annual

data series from (1970-1994). Enrolment rates at primary, secondary and higher secondary

levels were taken as a proxy for human capital in the study. Human capital was found to be

positively related with economic growth in Pakistan at 1% level of significance and at 5%

level of significance in case of Sri-Lanka at secondary and higher secondary level

respectively.

Blooms and Sachs (1998), as cited in Hamoudi and Sachs (1999), provided empirical

evidence on the relationship between health variables and economic growth rates and found

that health variables play a significant role in determining economic growth rates. They

showed this by investigating cross-country data between (1965-1990), using a basic growth

model, and they found that an increase of life expectancy by one percent accounted for an

acceleration of GDP per capita growth by over 3% per annum. In addition, health and

demographic variables explained over half of the differences in growth rates between Africa

and the rest of the world over that same period.

Mostafizur (2011) investigated the causal relationship among health expenditure,

education expenditure and GDP for Bangladesh. With the use of time series data for the

period (1990–2009) and with the use of Augmented Solow Growth Model, he included

education expenditure and health expenditure as education and health capital. From the Error

Correction Model (ECM) methodology he found out that an inclusion of health and education

expenditure as an investment in health and education capital improve the significance of the

coefficient of human and physical capital in the growth model for Bangladesh. Secondly, he

found out that the causal relationship among these variables by vector auto regressive (VAR)

Granger-Causality test. From the study he found out the existence of bi-directional causality

from education expenditure to GDP and also from education expenditure to health

expenditure and only unidirectional causality is obtained from health expenditure to GDP.

Aka and Demount (2008) examines the causal relationships between human capital

(education, and health) and economic growth for the USA using time series approach for the

period (1929-1997). They find out cointegration between the variables under study. The

ECM-VAR investigations show bi-directional causality between education and health.

Causality also is shown from education to economic growth, but not the reverse. On the other

hand, causality is found between health and economic growth and not the reverse. They went

22

ahead to perform variance decomposition and impulse response functions to see the

importance of the impacts among these variables. The results show that the long-run dynamics

of growth are slightly explained by past health and education level, and the health level

account for 10% of the evolution of education in the long run.

Nabila, Asma and Hafeez (2012) investigate the role of human capital in terms of

education and health on economic growth of Pakistan using annual data, from (1974-2009),

ADF, PP and Ng-Perron tests are utilized to check the stochastic properties of the variables.

Long-run relationship among variables is confirmed through Johansen and Juselius

cointegration test whereas the long-run and short-run dynamics are observed by VECM

specification. For causality purpose both VECM based causality and Toda-Yamamoto

causality tests are employed. Stability of the model is confirmed through CUSUM and

CUSUMSQ. The results indicate strong positive impact of human capital on economic growth

despite the fact that Pakistan has been spending less percentage of GDP on education and

health facilities to create human capital. The study recommended that in order to reap

maximum benefits from human capital there is a need to formulate and implement effective

economic policies related to the provision of education and health facilities to the people.

Chete and Adeoye (2002) investigated the empirical mechanics through which human

capital influences economic growth in Nigeria. They attempted to achieve this objective using

VAR analysis and OLS to capture the influences. They, however, concluded that there is an

unanticipated positive impact of human capital on growth, and effort of various Nigeria

governments since the post independence have appreciated by prodigious expansion of

educational infrastructure across the country; but they are quick to point out that the real

capital expenditure on education and health have been rather low.

Uwatt (2002) empirically examined the impact of human capital on economic growth,

from (1960-2000) using five variant of original Solow Model linking physical capital, labour

and human capital proxied by total enrolment in educational system to real Gross Domestic

Product. The result showed that physical capital exerted a positive and very statistical impact

on economic growth. Its coefficient was statistically different from zero at 5% significant

level, labor force had positive but statistically insignificant on economic growth. On human

capital variable, it was human capital from primary school education that was statistically very

23

significant on the growth of Nigeria economy, while in the case of tertiary education the result

failed totally with priori expectation.

Babatunde and Adefabi (2005) investigated the long run relationship between education

and economic growth in Nigeria between (1970-2003) through the application of Johansen

cointegration the result discovered a long run relationship between human capital

development (proxied by schools’ enrolments in primary and tertiary institutions and average

years of schooling) and economic growth measured by output per worker. Their result showed

that education has a statistically significant positive relationship with economic growth.

However, they did not give consideration to government health expenditure as a human

capital component in the model specified and estimated.

Adenuga (2006) examine the relationship between economic growth and human capital

development using Nigerian data from (1970-2003). They applied cointegration theory

incorporating the ECM and found that investment in human capital, through the availability of

infrastructural requirements in the education sector accelerates economic growth. The work

then concludes that there can be no significant economic growth in any economy without

adequate human capital development. However, in Nigeria, focus was on accumulation of

physical capital for growth and development without adequate attention to the important role

played by human capital in the development process.

Maku (2009) examine the relationship between total government spending and economic

growth in Nigeria over 30 years (1977-2006). He regressed real GDP on private investment,

human capital investment, government investment and consumption spending. His result

shows that human capital investment as a share of real output has positive but statistically

insignificant effect on the growth rate of real GDP. He concluded that government

expenditure had no significant influence on economic growth in Nigeria. Based on his

analysis, it is reveals that the variables have not maintained a uniform pattern in the period of

study owing to persistent random shock effects on the time series. From his report the rate of

government expenditure to real GDP has been rising since the Structural Adjustment

Programme (SAP) without significant contribution to economic growth in Nigeria. This he

attributed to lack of government monitoring of the contract awarding process of capital

projects, ineffective deployment of government funds to productive activities, and lack of

transparency and accountability by the government on government spending. However, it is

24

our opinion that if the study had used expenditure relating to human capital development (say,

expenditure on education and health) he might as well obtain a different result.

Owolabi and Okwu (2010) investigated the role of human resource development in

economic growth in Nigeria from (1983-2007). The study employed quantitative analysis

approach. The variables considered were government expenditures on education and health,

primary education enrolment rate, secondary education enrolment rate, tertiary education

enrolment rate and gross domestic product. The major tool of analysis is a multiple regression

analysis model (MRS). Were they treated gross domestic product as the explained variable

and the others as the explanatory variables, The model was estimated via OLS techniques, The

result showed that only secondary and tertiary education enrolment rates exerted statistically

significant effect on economic growth in Nigeria. The others exerted positive but insignificant

effect on economic growth. However, the explanatory variables jointly exerted significant

effect on growth. No outcomes of heath expenditure were included in their study like (infant

mortality and life expectancy).

In a similar study by Oluwatobi and Ogunrinola (2011) they examine the relationship

between human capital development and economic growth in Nigeria, from (1970-2008), the

augmented Solow model was also adopted. The dependent variable in the model is the level of

real output while the explanatory variables are government capital and recurrent expenditures

on education and health, gross fixed capital formation and the labour force. It seeks to find out

the impact of government recurrent and capital expenditures on education and health in

Nigeria and their effect on economic growth. The data used for the study are from secondary

sources while The result shows that there exists a positive relationship between government

recurrent expenditure on human capital development and the level of real output, while capital

expenditure is negatively related to the level of real output. The study recommends

appropriate channelling of the nation’s capital expenditure on education and health to promote

economic growth. Yet no outcome of health indicator were considered in this study

2.5 LIMITATIONS OF PREVIOUS STUDIES

After reviewing empirical literature on the subject matter, it is evident that in case of cross

country studies empirical results remained inconclusive whereas in a single country analysis

most studies supports positive association between human capital and economic growth. Thus

25

literature has proved overtime that there is the possibility that the relationship that existed in

the theory may not be replicated in real economy activities given the presence of some factors,

which may not be clearly identified in the theory Ajisafe et al. (2006). The divergence of

opinion in the literatures on human capital development emanated from various streams of

human capital nexus used by different scholars, as these seems to suggest that the study has

become an important empirical debate among researchers and policy makers.

Moreover the choice in the use of different variables to capture human capital, differences

in locations (regions where studies are undertaken) and heterogeneities among countries and

the inaccuracy of data contributed to differences in results. Sometimes, understanding the role

of education and health by collapsing developed and developing countries in the same sample

at a time may not be informative since growth processes and determinants in these extreme

worlds may not necessarily be the same. Thus, there is a need to treat developing world

separately.

Until recently, investment in education was seen as the only means of increasing human

resource for better economic performance. Little or no attention was paid to health; but there

is no doubt that health as a component of human capital is very essential for growth and

development. So most of the empirical research conducted on the subject matter on Nigeria

economy has defined human capital in terms of education indicators or in terms of health

indicators. These indicators alone fail to capture development and skills of the labor force;

therefore, there is a need to conduct research on this aspect that uses much broader measure of

human capital in the context of Nigeria economy. The present study is an attempt to use

broader measure of human capital as it uses education index and health index as proxies for

human capital.

This work is designed to analyze government expenditure on human capital development

and economic growth in Nigeria and also ascertain the variation of expenditure on human

capital development between civilian and democratic regimes in Nigeria. This study is

therefore carried out to fill some of these gaps identified above, as government expenditure on

human capital development (education and health) on economic growth related issues on

Nigeria are scarce to come by as health which is one of such variables which is important in

explaining growth but usually, and mistakenly ignored by growth accountants and some

scholars, will be included in this work.

26

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 ANALYTICAL FRAMEWORK

The specification of the relationship between human capital and growth is well grounded

in economic theory. One of such is augmented Solow human capital growth model. The

model is an improvement on the original growth model. Solow original model did not

explicitly incorporate human capital. In order to do that, Mankiw, Romer and Weil (1992)

came up with the Augmented Solow Model. The justification for inclusion of human capital in

the model is the fact of non-homogeneity of labour in the production process either within a

nation or across different economies due to their possession of different levels of education

and skill.

This modification facilitates the suitability and hence, the adoption of this model for this

works in the Nigerian context. Following Mankiw, Romer and Weil (1992) and Olaniyan and

Okemakinde (2008). The basic assumption in this model is that increase in workers quality

through improved education and health, improve output and ensures greater productivity.

Thus the Augmented Solow Model is therefore specified as follows;

Y= AK α (hL) β ----------------------------------------------------------- (1)

where

Y = Output level

K = Stock of physical capital

h = Level of human capital

L = Labor, measured by number of workers

A = Level of total factor productivity

α = Elasticity of capital input with respect to output

β = Elasticity of labour input with respect to output

3.2 ECONOMETRIC SPECIFICATION

The augmented Solow model can be specified in an econometric form as follows:

Y= AK α (hL) β U ----------------------------------------------------- (2)

27

where the variable remain as defined in equation (1) above,

U is the error term which is assumed to iid

We further transform equation (2) into a log-linear form, and it becomes

Log Y = α0+α1logK+ βlog hL+V-------------------------------------- (3)

where α0 = logA

V = log U

In order to make equation (3) more relevant to this work and more suitable to the

Nigerian situation, we modify the model to accommodate other variables. These variables

include government capital expenditure on education and health (CE) and recurrent

expenditure on education and health (RE). These two variables are incorporated to capture

government expenditure on human capital development, since this study is focused on

government investment in human capital development and its effect on economic growth.

When we incorporate these new variables in equation (3) the expanded form becomes

LogY = α0 + αIlogK + βloghH + α2logRE + α3logCE + V----------------------------(4)

where

LogY = which is output level proxied as log of real gross domestic product

(RGDP);

Log K = stock of physical capital formation proxied as gross fixed capital formation

(GFCF);

Log hL = total stock of human capital proxied as a product of total school enrolment

(TSE);

Human capital development is proxied by government capital and recurrent expenditure on

education and health that is CE and RE.

Based on the above formation, the model can be written as

RGDP = α0 + α1GFCF + α2TSE + α 3RE + α4CE + V------------------------------- (5)

The a priori expectations are

α0, α1, α2, α3, α4 > o

Equation (5) shall be estimated using (OLS)

28

3.2.1 Model two

Following the work of Craigwell, Lowe and Bynoe (2012), this study will adopt their

model with modifications. Hence we introduce new variables in the model in order to suit our

objective. The relationship between government expenditure and human capital development

outcomes can be specified in the following equations.

The health regressions are modeled as follows:

HE = α0 + α1X1 + α2Z2 + α3Y3 + Ut ---------------------------------------- (1a)

where

HE = health, proxied by life expectancy

X1 = is a vector of investment comprising of recurrent expenditure on health as a percentage

of total government expenditure;

Z2 = is a vector of investment comprising of capital expenditure on health as a percentage

of total government expenditure;

Y3 = is a vector of infant mortality rate

Ut = white noise

The education regressions are modeled as follows:

EEj = b0 + b1X1 + b2Z2 + b3Y3 + Ut------------------------------------------------ (1b)

where

EEj = Education, proxied by total school enrollment for primary, secondary and tertiary

gross school enrollment

X1 = is a vector of investment comprising of recurrent expenditure on education as a

percentage of total government expenditure;

Z2 = is a vector of investment comprising of capital expenditure on education as a

percentage of total government expenditure;

Y3 = is a quality variable proxied by literacy rate

Ut = white noise

3.2.2 Model Three

To capture the third objective we introduce a dummy variable to capture the variable

administration/ regime in the country during the period of study.

H = π0 + π1MIL + µ ………………………. (8)

29

Where H = human capital development expenditure in Nigeria comprising of capital and

recurrent expenditure on education and health.

MIL = military administration regime.

µ = the random term, the base group here is civilian administration, π1 is a dummy

variable which assume one (1) if human capital expenditure is during military regime

and zero (0) otherwise.

3.3 MODEL ESTIMATION TECHNIQUES

The first model will be used to capture the first objective; the second model for the second

objective while the third objective is for the last model. Hence the following techniques shall

be employed in the research work for various tests.

In order to strengthen our analysis and findings, we apply a statistical tool of

econometrics based on OLS. We will carry out a unit root test, to test the order of stationarity

of the data set and see if there is a long equilibrium between the variables of interest. After

conducting the unit root test, we shall be able to identify the order of integration of the

variables, if any of the explanatory variables have the same order of integration with the

dependent variable then we may suspect that they are co-integrated and their linear

combinations at their original form without the constant term and save the residual.

3.4 DATA SOURCES AND COLLECTION

The success of any econometric analysis ultimately depends at large on the availability of

appropriate data. However the researcher should always keep in mind that the results of any

research are only good as the quality of the data (Gujarati, 2007). The data will be source from

secondary sources like; World Bank Development Indicators (WDI), National Bureau of

Statistics publication (NBS) and the Central Bank of Nigeria statistical bulletin (CBN).

3.5 SOFTWARE PACKAGE

The study will make use of E-view version 4.0 econometric software; while ms-excel will

be use for data computation.

30

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TABLE OF CONTENT

CHAPTER ONE

1.0 INTRODUCTION/BACKGROUND OF STUDY------------------------------------------------------------------ 1

1.2 STATEMENT OF PROBLEM------------------------------------------------------------------------------------------- 3

1.3 OBJECTIVE OF STUDY-------------------------------------------------------------------------------------------------- 5

1.4 STATEMENT OF PROBLEM--------------------------------------------------------------------------------------------- 6

1.5 SIGNIFICANT OF PROBLEM-------------------------------------------------------------------------------------------- 6

1.6 SCOPE OF STUDY---------------------------------------------------------------------------------------------------------- 6

CHAPTER TWO

2.0 LITERETURE REVCIEW/CONCEPTUAL FRAMEWORKS------------------------------------------------------- 7

2.2 THEORETICAL LITERATURE REVIEW------------------------------------------------------------------------------ 8

2.2.1 THE THEORIES ON INCREASING PUBLIC EXPENDITURE--------------------------------------------------- 8

2.2.1.1 KEYNESIAN AND CLASSICAL VIEW----------------------------------------------------------------------------- 8

2.2.1.2 WAGNER AND WISEMAN-PEACOCK THEORY---------------------------------------------------------------- 9

2.2.2 EXOGENOUS AND ENDOGENOUS THEORIES ON HUMAN CAPITAL----------------------------------- 9

2.2.2.1 THE TRADITIONAL NEOCLASSICAL GROWTH THEORY (EXOGENOUS) ------------------------------9

2.2.2.2 NEW GROWTH THEORY------------------------------------------------------------------------------------------------10

2.3 THEORITCAL LITERETURE------------------------------------------------------------------------------------------------12

2.3.1 THE CONCEPT OF HUMAN CAPITAL---------------------------------------------------------------------------------12

2.3.2 HUMAN CAPITAL DEVELOPMENT IN NIGERIA ------------------------------------------------------------------13

2.3.3 PROFILE OF FEDERAL GOVERNMENT EXPENDITURES ON EDUCATION AND HEALTH SECTORS IN

NIGERIA -----------------------------------------------------------------------------------------------------------------------------14

2.3.4 THE ROLE OF EDUCATION AS COMPONENT OF HUMAN CAPITAL-----------------------------------------15

2.3.5 THE ROLE OF HEALTH AS A COMPONENT OF HUMAN CAPITAL-------------------------------------------17

2.4 EMPIRICAL LITERATURE---------------------------------------------------------------------------------------------------19

2.5 LIMITATIONS OF PREVIOUS STUDIES ---------------------------------------------------------------------------------23

CHAPTER THREE

3.1 RESEARCH METHODOLOGY/ANALYTICAL FRAMEWORK----------------------------------------------------- 25

3.2 ECONOMETRIC SPECIFICATION------------------------------------------------------------------------------------------25

3.2.1MODEL TWO--------------------------------------------------------------------------------------------------------------------27

3.2.2 MODEL THREE----------------------------------------------------------------------------------------------------------------27

3.3 MODEL ESTIMATION TECHNIQUES--------------------------------------------------------------------------------------28

3.4 DATA SOURCES AND COLLECTION--------------------------------------------------------------------------------------28

3.5 SOFTWARE PACKAGE---------------------------------------------------------------------------------------------------------28