Human Capital and Economic Growth: A Three Stage Least Squares Approach

Abstract

This paper examines the role of government investment in human capital on economic growth of the Nigerian economy. Using time series data from 1980 – 2010, the paper adopted the Ordinary Least Squares(OLS) and 3 Stage Least Squares analytical technique, in an Augumented Human Capital Solow theoretical framework. The study found that human capital alongside with technological development and population growth has a positive relationship with growth of the Nigerian economy. The model confirmed that adequately trained and employed population enhances the growth of the economy It further revealed that the Nigerian experience does not support Solow’s hypothesis of high population growth/low productivity relationship. When Solow’s full employment assumption is relaxed, high population growth rather enhances productivity. The study also found that education has the greatest marginal impact on life expectancy.  Although the private sector benefits maximally from an educated population, she may not invest adequately in human capital development. However, both the rent- seeking and non-rent seeking behaviour of economic agents are estimated to impact positively on economic growth of Nigeria directly or indirectly. The study therefore recommends an urgent need for government to strategically shift her investments towards the continuous development of effective and efficient human capital. This will serve as the foundation for an effective development of an organized private sector.

Key Words: Government Investment, Human Capital, Economic Growth, Life expectancy, Rent-Seeking and non-Rent- Seeking behaviour.