AN EVALUATION OF THE IMPACT OF HUMAN CAPITAL FORMATION AND UTILIZATION ON ECONOMIC GROWTH IN NIGERIA (1981-2007
AN EVALUATION OF THE IMPACT OF HUMAN CAPITAL FORMATION AND UTILIZATION ON ECONOMIC GROWTH IN NIGERIA (1981-2007
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Date
2013-04
Authors
ALIYU, Ibrahim
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Abstract
The broad objective of this dissertation is to empirically assess the channels through which
human capital formation and utilization affects economic growth in Nigeria. This was done at
both aggregate and disaggregated levels for various sub sectors of the economy using annual
time series data from 1981 to 2007 by applying the Johansen co-integration technique and vector
error correction methodology. There are two channels hypothesized: the first channel is when
human capital is a direct input in the production function while the second is when human capital
affects total factor productivity. Because of the inadequacies of the various existing measures of
human capital, a multi-indicator latent measure of human capital was developed for the study
using Factor Analysis. Having tested for the stochastic characteristics of the times series using
Augmented Dickey Fuller (ADF) test, the study estimated a (cointegrated) Vector
Autoregressive Model of the Nigeria’s growth process at both aggregate and sectoral levels. The
Impulse Response Functions (IRFs) were used to estimate the dynamic elasticities of the various
measures of output with respect human capital. The findings confirmed the role of human
capital as a source of economic growth in Nigeria through factor accumulation. The result of the
study shows that human capital does not only have a positive impact on economic growth but
such impact is strong and statistically significant. The long run co-integrating coefficients show
that in the long run, a 1% increase in human capital will enhance economic growth by 0.3% and
in the event of a one unit deviation from the long run GDP growth, there is a correction of
approximately 4%. From the plot of the dynamic elasticity of output with respect to human
capital, it was found that the immediate impact of a 1% increase shock to human capital is a
2.5% increase in output and the long run permanent impact is a 1% increase in output which
implies that the interaction of human capital and technology did not lead to increasing returns to
scale in the Nigerian economy as might be expected. The disaggregated results confirmed the
role of human capital in the agricultural, manufacturing and service sectors of the economy.
From the plot of the dynamic elasticity of output with respect to human capital, it was found that
the immediate impact of a 1% increase shock to human capital increases output in the
agricultural, manufacturing and service sectors by 5.5%, 3.9% and 0.2% respectively. In the long
run, the permanent impact of a 1% increase shock to human capital is a 4.5% increase in
agricultural output and a 0.28% and 4% decrease in manufacturing and service output
respectively. A major policy implication of our findings is that in order to reduce the number of
years it takes human capital effect to be optimal, government should provide public subsidies
and company tax concessions for on the job training in the private sector. Government should
direct its focus on linkages with employers of labor to generate demands for skills. In view of the
growing proportion of people working in the informal economy, government should adopt
strategies to train for self employment.
Description
A DISSERTATION SUBMITTED TO THE SCHOOL OF POST GRADUATE STUDIES
AHMADU BELLO UNIVERSITY, ZARIA
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF A
DOCTOR OF PHILOSOPHY (PHD) DEGREE IN ECONOMICS
DEPARTMENT OF ECONOMICS
FACULTY OF SOCIAL SCIENCES
AHMADU BELLO UNIVERSITY, ZARIA
NIGERIA
APRIL, 2013
Keywords
EVALUATION,, IMPACT,, HUMAN CAPITAL FORMATION,, HUMAN CAPITAL FORMATION,, ECONOMIC,, GROWTH,, NIGERIA (1981-2007).