Human capital economic growth pdf

The findings from the study revealed that there is positive long-run relationship among secondary school enrolment, public expenditure on education, life expectancy rate, gross capital formation and economic growth but it is statistically insignificant.

The results also showed that there is negative long-run relationship among primary, tertiary school enrolment, public expenditure on health and economic growth. In line with the findings, the study recommended that government should put in place the required education and training policy that would guarantee quality schooling for primary and tertiary education.

Government should also commit more funds to health sector to enhance human capital development. Introduction As the global economy shifts towards more knowledge -based sectors, skills and human capital development becomes a central issue for policy makers and practitioners engaged in economic development both at nation or regional level OECD Human development refers to the process of acquiring and increasing the number of persons who have the skill, education, experience which are critical for the economic and political development of a country.

Human capital development is thus associated with investment in man and his development as a creative and productive resource Jhingan Schultz categorized and developed human resources into six ways: i Heath facilities and services: - this involves all expenditure that affects the life expectancy, strength and stamina, and vigor and vitality of the people, ii On — the job training which includes old type apprenticeship organized by firms, iii Formally organized education at elementary, secondary school and higher level, iv Study programmes for adults that are not in agriculture, v It involves migration of individual and families to adjust changing job opportunity factor mobility , vi Finally, transfer or importation of technical assistance, expertise and consultants.

Onakoya described human capital as an important factor used in converting all resources to benefit mankind. Human capital development is strategic to the Scio-economic development of a nation and includes education, health, labour, employment and woman affairs. In a nutshell, investment in human capital development means expenditure on health, education, and social services in general but in a narrow sense, it is capable of measuring all expenditure on social services.

For this study, the two basic objectives of human capital development will be the centre of focus which is Education and Health. There are important ends in themselves. Health is central to well-being and education is essential for a satisfying and rewarding life: both are fundamental to the broader notion of expanding human capability and that it has the heart of the meaning of development Todaro According to Galbraith, he affirms that industrial growth is a function of investment on human capital development rather than physical capital becomes more productive if a country possesses efficient human capital.

Therefore, there is a complementary role between physical capital and human capital. With numerous pathways, there is causal system linking education and health as discussed below.

Capital stock depends to a considerable extent on human capital formation which is the process of increasing knowledge, the skills, and capacities of all people of the country. Statement of the Problem DOI: Moreover, less developed countries in which Nigeria inclusive are characterized by economic backwardness which manifests itself in low labour efficiency, factor immobility, limited specialization in occupations, deficient supply of entrepreneurship and customary values and traditional social institutions that minimize the incentives for economic change.

In addition, the economic quality of population remained low when there is little knowledge of natural resources that are available and where alternative production techniques, necessary skills, the supply of entrepreneurship and other opportunities to boost growth and development is inadequate.

In fact, without an improvement in the quality of people or human factor, no progress is possible. The trajectory to progress is through schooling, learning, on- job-training, advances in health and growing stock of information of the economy which is apparently insufficient in Nigeria.

In the recent time, there is an increase in investment on education at all levels but the returns are very low due to deficient supply of entrepreneurship. This study intends to fill this missing link. The broad objective of this study is to examine the impact of human capital development on economic growth in Nigeria while the specific objective is to analyse the dynamic relationship between education, health and economic growth.

The rest of the paper is organized as follows: section two is on literature review. This is followed by the research methods and discussion of results in section three and four respectively.

Section five concludes the paper. He stressed further that increment in knowledge will add to the level of technology at each innovation. Lucas also contributed that the growth rate of human capital is determined by time spent in education or training, which describes the way human capital affects current production. Ben habib and Spiegel suggests that countries with higher education lead to close the technology gap faster than the others.

Investment in Education and Health as a major factor in Human Capital Development and its connection with Economic Growth Human Capital is a broad and multifaceted concept encompassing many different types of investment in people.

Education and health are investments made in the same individual. Education is the key to creating, adapting, and spreading knowledge. Education can add to the value of production in the economy and also to the income of the person who has been educated. But even with the same level of income, a person may benefit from education - in reading, communicating, arguing, in being able to choose in a more informed way, in being taken more seriously by others and so on Nobel Laurate Amatyasen The connection between health and education include similar analytical treatment.

There is a dual impact of effects of health spending on the effectiveness of the educational system and vice- versa. Greater health capital may raise the return on investment in education and vice - versa.

For example, in childhood, good health improve educational outcome, again, expectation of good adult health improve schooling investments in childhood while education affects health in adulthood. In addition, may health programmes rely on skill learn from school including literacy and numeracy. School teaches basic personal hygiene and sanitation. Education is needed for the development and training of health personnel. Life expectancy also raises return to investments in Education.

In advanced countries, however, the key aspect of human capital has to do with the cognitive and non- cognitive abilities that are acquired at home, in the work place and in formal and informal training and are useful in production of goods, services and further knowledge Fuente Human Capital development relates to the education, training and utilization of human potentials for social and economic progress.

Hallats DOI: These energizers are interlinked and interdependent but education is the basis of all the others as essential factor in the improvement of health and nutrition for maintaining a high- quality environment, for expanding and improving labour pool, and for sustaining political and economic responsibility.

Therefore for attainment of economic growth and development in an economy, there is serious need to develop human resources in that economy. Adamu described education as the most effective instrument through which the society can be transformed, but the extent to which a country investment in education among other sectors, will determine the level and the rate of its transformation.

Education equips human resources with needed knowledge, skills and competences which would make them functional and contribute to the all-around development of the nation. Models of Economic Growth and Human Capital Development These models shall be briefly discussed as follows: i Exogenous theory ii Endogenous theory The Exogenous Theory Neoclassical growth theory seeks to understand the determinant of long-term economic growth through accumulation of factor inputs such as physical capital and labour.

Studies revealed a significant contribution from technical progress, which is defined as an exogenous factor. Solow and Swan are among those who first demonstrated this. Neoclassical Model is on aggregate production function which exhibit constant return to scale in labour and reproducible capital. The model shows that technological progress contributes to economic growth but it does not spell out how it takes place The rate is set exogenously.

The justification of Slow was that technological change originated from knowledge produced by public science base e. The model puts forward that output grows in proportion to capital because of the effect of knowledge creation activities that counteract diminishing returns. He says more of these externalities will produce new technological knowledge and therefore economy will grow. The assumption that accumulation of knowledge is still external in the relationship does not explicitly express how knowledge creation is remunerated and this brought about the second Romer Model.

Here Romer focused on production function of knowledge by research workers. This model assumed that technological knowledge in labour augments and enhances their productivity. The Model assumed that research workers create technological knowledge. It is planned to see that the more researchers, the more new idea is created, the larger the existing stock of knowledge and the new idea that is produced effect of externalities.

The second Romer Model also adopts a Schumpeterian view of innovation and explicitly assumes market power. Aghion and Hewitt extend the model of Schumpeterian.

However, there is every reason to believe that technological progress itself depends on economic decisions, to much the same degree as capital accumulation.

Entrepreneurs look for ways to make profit and one way of doing this is to produce new ideas. Since there is a profit incentive to produce new knowledge and to innovate, therefore, innovation needs to be incorporated into a model of economic growth in such a way that, while they spur innovation, they are in the other hand advanced by economic growth.

Therefore, technological progress needs to be indigenized. Kandrick accounted for economic growth by adding intangible investments such as human capital e. The failure of neoclassical model to introduce technological progress in such a way to account for it causes i. The model is fully operational in the case of a DOI: This implies that the model does not have enough increasing returns to sustain output growth in the long run without growth in labour.

Romer views research workers as the source of new idea and earns profits. An example of this is prediction of scale effect. There is another controversy by Lucas on how human capital affects economic growth. He views accumulation of human capital as a springboard for economic growth. The approach of Nelson and Phelps and Benhabib and Spiegel assume that stock of human capital determines the ability of an economy to develop and assist technologies as well produce economic growth.

Empirical Literature Adenuga examined the relationship between economic growth and human capital development using Nigerian data from to They applied co-integration analysis incorporating the Error Correction Mechanism and found that investment in human capital through the availability of infrastructural requirements in the education sector accelerate economic growth. This study concludes that there will be no significant economic growth in any economy if there is no human capital development.

Lawal N. A and Wahab T. I examined the relationship between education and economic growth. The study stressed that investment in quality and quality of Education would boost Human capital and bring about growth and sustainable economic development. Ordinary Least Square technique was used to estimate the model of the study. The findings showed that there is direct relationship between investment in education and economic growth in Nigeria.

The growth model also indicated that to include more than one economic sector and to consider technology, spillover across sectors. Oluwatobi and Ogunrinola examined the relationship between human capital development efforts of the Government and economic growth in Nigeria. It seeks to find out the impact of government recurrent and capital expenditures on education and health in Nigeria and their effects on economic growth.

In fact, the components which make some countries more prominent than others include any kind of supplements to inparticular, labor, which is a production factor. Countries with a qualified labor force integrate this force with advanced technology and thus experience the advantage of always being one step ahead in competition. Previous studies and experiences revealed that economic growth could not be achieved by only improving physical conditions.

Additionally, the knowledge and skills acquired by the working and producing individual should also be accepted as a tool for economic progress. Based upon the aforementioned information, one can see that the size of a population alone is not sufficiently effective on economic growth and the bottom line is the knowledge, skills, and experience-like attributes of the population. Literature Review The research on human capital was started by Lucas and Romer with the inclusion of human capital into their models and the research continues today.

Schultz differentiated human capital from the traditional perception of capital and accepted it as knowledge investment made on humans and indicated that a labor force which is not enriched with knowledge would not provide any contributions to economic growth in modern economies. Benhabib and Spiegel investigated the role of human capital in economic growth and reported the positive impacts of physical and human capital on economic growth.

Sacerdoti, Brunschwig, and Tang , in a study carried out in Western Africa, investigated the effects of human capital on economic growth and indicated that physical capital was more effective on economic growth than human capital. The studies indicated that the reason why human capital was not very effective was due to the lack of qualified and trained individuals who were able to use advanced technology in human capital. Evans, Green, and Murinde , in a study to investigate the effects of human capital and financial developments on economic growth, used the year data of 82 countries.

The researchers indicated that financial development was as effective as human capital in economic growth. In a study pointing out the significance of human capital in an endogenous growth model, Taban and Kar used the causality test on annual data for Turkey covering the period within and reported a positive and reciprocal relationship between human capital and economic growth.

The researchers used the share of health and education expenses in income to indicate human capital and found a causality relationship between the variables.

Sarkar , in his study, used the data of 92 countries covering the period of He obtained similar results with Benhabib and Spiegel and indicated that human capital was effective and had positive effects both on the prevention of income injustice and on economic growth. The researchers reported that human capital was a significant factor in the growth of the Swedish economy, but the effects of human capital with improved educational levels after the s had relatively lower impacts on economic growth than expected.

Bucci and Torre , in their study, analyzed the relationship between the change in population and income per capita and concluded that human capital had ambiguous effects on income per capita during the process of knowledge and skill formation.

However, the population had both direct and indirect impacts on economic growth. The researchers reported long-term significant positive relationships among human capital, fixed capital, and export and concluded that human capital resulted in economic growth in Turkey. The researchers used real annual gross domestic product, real export and enrollment to higher education data for the period in Turkey and concluded that on increase in export and human capital supported long-term growth and on increase in gross domestic product nurtured on increase in human capital.

Empirical Study and Results In this study, the long-term relationships between human capital and the gross domestic product GDP of Turkey were analyzed for the period of The human capital index created based on years of education and returns of education was used to represent human capital HC ; real GDP values were used to represent the GDP variable. For sound and reliable outcomes, the unit root content of the variables used in estimations should be analyzed. Structural breaks in tested series should also be taken into consideration because there may be breakpoint unit roots in data series and the resultant outcomes may be misleading when they are not taken into consideration.

Therefore, tests were conducted in this study to identify structural breaks. To overcome such a problem, Lee and Strazicich expanded the minimum Lagrande multipliers LM unit root test introduced by Schmidt and Phillips to the literature.

In the LM test, the null hypothesis can be formed by taking structural breaks into consideration. Two structural breaks at level and trend are also identified as endogenous. In this way, the number and dates of structural breaks and the presence of unit roots in series can be analyzed reliably. The unit root tests revealed that both variables included a unit root. In this case, the stable state of the linear combination of these two variables should be identified through cointegration analysis.

Cointegration analysis tests the stable nature of the linear combination of unstable series including a unit root. It is also used to assess long-term relations between series, to assess whether or not there is a long-term balance between series and to assess the synchronized operation of series. There are various approaches in the literature to test this relationship. However, micro economic variables in the long-run are evidently affected and vary due to factors like economic crises, technology shocks, political changes, variations in individual decision, and preferences.

As was indicated by Perron , such changes, also called structural breaks, should definitely be taken into consideration in analyses for reliable outcomes. Therefore, in this study, the cointegration test developed by Hatemi-J was used to take possible structural breaks into consideration and to get better and more reliable results. The cointegration test introduced the literature by Gregory and Hansen and allowance for one endogenous break among the investigated series was expanded to two endogenous breaks by Hatemi-J The method operates over model 1 by considering two structural breaks for the GDP and HC variables in long-term relations between the series as follows: 1 where is a dependent variable vector and is an independent variable vector.

Hatemi-J formed the null and alternative hypothesis of the cointegration test as follows: H : There is no cointegration between the variables. H : There is cointegration between the variables. Causality analysis between the variables is another critical issue. The causality test recommended by Hacker and Hatemi-J is both a newer method and uses the bootstrap technique allowing calculation of critical values in accordance with the data set used in the study. Therefore, the method was regarded as a more reliable method.

The critical values calculated with this method and test statistics are provided in Table 3. The results provided in Table 3 indicate that the null hypothesis for both cases is rejected. In this case, the causality analysis results indicate that the changes in GDP were the reason for the changes in HC and vice versa. Therefore, there was a dual causality relationship between the variables.

The estimation of long-term cointegration parameters in which human capital was taken as an explanatory variable, and the calculation of their effects on the dependent variable are other critical issues. In this study, the long-term cointegration parameters were separately estimated by using these estimators. The estimation results calculated by using the logarithmic values of the variables are provided in Table 4. In this way, coefficients were able to be interpreted as having flexibility. The values in parentheses indicate standard errors; the values in brackets indicate probability values.

The first column in Table 4 presents the results obtained with the OLS estimator. The autocorrelation problem in OLS estimation was solved by including the AR 1 process into the model. However, if there is an endogeneity problem, then the results are deviant and inconsistent.

The other estimators do not have such problems. After all, OLS estimations were different from the other estimations and had higher standard errors. The results obtained from all the estimators had the uppermost significance levels.

The least standard error was observed in the DOLS estimator. Conclusion In this study, the significance of human capital in endogenous growth theories was pointed out and the effects of labor enriched with knowledge and skills on economic growth were obtained.

In modern economies, developed countries have established their place in international competition not with the quantitative wealth of their human capital but with highly qualified and educated individuals. Therefore, the relationship between economic growth and human capital has been the topic of several studies.

The findings of the present study revealed that these variables acted synchronously in the long-run and there was a balanced relationship between them. Another outcome of this study was the presence of a dual causality relationship between the variables.

Such an outcome can be interpreted as follows: an increase in human capital was responsible for increased incomes in Turkey and vice versa. Accordingly, the cost fractions spent to increase the human capital level in the long-run result in more than a 3-fold increase in GDP. Such a case revealed that politicians searching solutions for growth and development should never hesitate to take steps to improve human capital levels.

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