Analysis of the Relationship between Human Capital Development and Economic Growth in Nigeria

Abstract

This research aimed at examining the relationship between human capital development and economic growth in Nigeria. We made use of co-integration techniques and The vector error correction model (VECM). It was observed that there is significant long-run relationship between human capital development and economic growth in Nigeria. This is confirmed by the Johansen co-integration. Also the result of vector error correction model (VECM) indicates that 1% increase in the government expenditure on education (TEDU), on the average, led to 23.8% increase in GDP while 1% increase in the government expenditure on health (THEA) caused 37.6% decrease in GDP. The two variables, as human capital development factor, were found to have significant effect on economic growth. However, government expenditure on education has positive relationship with GDP. This implies that increase in expenditure on education contributes positively to the growth of the economy. The policy implications are in three directions: To retain the continuous long run relationship with GDP and human capital development, effort should be made to harmonize the activities in the health and education sector with much attention on funding; Government expenditure on education was found to have positive effect on the economy. In the light of this, government should try as well to meet up with world standard benchmark on education expenditure in the annual budget. In so doing, this will improve on the economy and Government expenditure on health was found to have negative effect on the economy. Therefore, effort should be made by government to address the agitations by the health workers which always make them to resort to frequent strike actions. If these worrying issues are looked into, perhaps the instability experienced in the health sector would be addressed. Efforts should be made to equip our health sector so that capital flight in the name of foreign medical treatment is reduced.

Keywords: Human Capital development, Government Expenditure on Education, Government Expenditure on Health, Nigeria.