1AN ECONOMETRIC ANALYSIS OF GOVERNMENTEXPENDITURE ON HUMAN CAPITAL DEVELOPMENTAND ECONOMIC GROWTH IN NIGERIAAN M.Sc PROJECT PROPOSALBYEZECHUKWU UCHENNAPG/M.SC/2010/57503Email: firstname.lastname@example.orgMOBILE +2348037400466DEPARTMENT OF ECONOMICSUNIVERSITY OF NIGERIA, NSUKKA.SUPERVISOR Dr (Mrs.) S I MADUEMENOVERMBER 2012
2CHAPTER ONEINTRODUCTION1.1 Background to the StudyThe belief that human capital is an engine of growth rests on the implementation of qualityand quantity of resources devoted to that sector in any country , as it stood out as generallyacclaimed impetus for the actualization of sustainable growth and development in aneconomy. 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 youask about the major determinants of economic growth in an international perspective, aneconomist and the World Bank, is likely to point out the importance human capital formationplay in an economy. Taking a closer look at this argument, it becomes clear how important thepresumed role of human capital is at the macroeconomic level. The developed nations likeSpain, America and a few other Asian countries like Taiwan, South Korea and China` havelong realized the importance of human capital as strategic effort towards economicdevelopment of their nations and have invested huge resources in that area (Owolabi andOkwu, 2010). Hence policy makers in the developing world need to focus on human capitalformation 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 inhuman capital in both developed and developing countries, while in most measures they haveimproved more dramatically in developing countries. As a result of that, there has been someinternational convergence in these measures (Todaro and Smith, 2009). Some of the generallyagreed causal factors responsible for the impressive growth of the economy of most developedand the newly industrializing countries are an impressive commitment to human capitalformation (Adedeji and Bamidele, 2003; World Bank, 1995). This was largely achievedthrough increased knowledge, skills and capabilities acquired through education and health byall the people of these countries. Hence it is important to assign greater emphasis on the roleof human capital as a major contributor to economic growth and development in the worldeconomy. However what is still debatable is, what factors should be considered as humancapital formation?
3Human capital formation refers to ‗‘the process of acquiring and increasing the number ofpersons who have the skills, education and experience that are critical for economic growthand development of a country‘‘ (Okojie 1995:44). While human development is a process ofenlarging people‘s choices, including living a long and healthy life, being educated, andhaving access to resources that are essential to achieving decent standard of living (HumanDevelopment Report, 1990). One of the early researchers in the area of relevance of humancapital resource in growth process was Schultz (1961). He identified five ways by whichhuman resources can be developed to include: health facilities; broadly conceived to includeall expenditure that affect the life expectancy, strength and stamina, and the vigour and vitalityof 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, includingextension programmes notably in agriculture and migration of individuals families to adjust tochanging job opportunities. This view is corroborated by the (United Nation EconomicCommission for Africa, 1988) and (Awopegba, 2002) when they argued that human capital isthe knowledge, skills, attitudes, physical and managerial efforts required to manipulatecapital, technology, land and materials to produce goods and services for human consumption.This human capital is often conceptualized as an aggregate function including bothhealth and education (Todaro and Smith, 2003), As Lawanson (2009) had pointed out, healthand education as two closely related human [resource] capital components that work togetherto make the individual more productive. Hence, taking one component as more important thanthe other is unrealistic as a more educated individual, who is ill, is as inefficient as anilliterate. Therefore, both components are equally important because of their closerelationship. For example, government expenditure on health and education raises theproductivity of labor and increase the growth of national output. Providing people with bettereducation 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 integrateddevelopment effort in Nigeria. At the aggregate level, a better educated and healthy workforceis 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 productivityand competitiveness of the territory. While the recent period of economic growth has resultedin significant improvements in government expenditures and general social wellbeing of the
4population, there is growing concern over the ability of the relevant social services (educationand health) to cater efficiently for the needs of the larger population.Government expenditure on human capital (such as education and health care) has beengenerally considered as the main distributive policy instrument of any government, especiallyby the developing countries (Bourguignon and Luiz, 2003). Similarly health is an importantelement to the nation as it raises the expectancy of life which means larger returns to theeducation development and growth as working life of the individual expands (White, 1975).Analyzing government expenditure on education and health care in human capitaldevelopment and its effects on economic growth will be the key to understanding the rationalefor the investment in the sector, being as necessities, basic and compulsory needs of humanpopulation. Greater attention should be giving to human capital in its own right, even inemerging economies, because the rationale for investing in human resources centered on thebelief that human resources play a crucial role in the process of economic growth anddevelopment. So national government needs to spend more on education and health but howmuch to spend and the extent of its impact on the economy is yet to be ascertained. Thus thiscalls for an empirical investigation.1.2 Statement of problemGood education and better health care should be the primary objective of any committedgovernment, because of its contribution on human capital development as endogenoustheories postulate that human capital spurs economic growth. It is perhaps in recognition ofthis that academic researchers and policy makers have been preoccupied with analysis ofgovernment 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 thanever before because of the knowledge based globalize economy. Such attention is also rootedin 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 towhich extent government expenditure on human capital (education and health) causeseconomic growth? Has been a basic concern for economic researchers.Spending by the various regimes in Nigeria in most sectors, especially the social sectorsseem to remain inadequate. It is this inadequacy of investment in the human capital that
5impedes the growth in the under-developed countries (Lekhi, 2008). Nigeria inclusive, thenwhen compared the condition of the human capital development in Nigeria, it looks muchfeeble. However, the state of the economy of Nigeria is rendered more unstable because of thedifferent political regimes that have prevailed in the country for over four decades in terms ofexpenditure pattern towards human capital development. Education and health are veryrelevant to human capital development, but the sectoral allocation to them during militaryregimes and civilian regimes exhibits some fluctuation in the investment pattern. With theadvent of democracy in 1999, the federal government allocation to education and health hasbeen on the increase and seems to be much higher than the average in the years of militaryregimes, This inconsistency in channeling of funding of government expenditure on educationand health sectors has generated problems of shortage in human capital development inNigeria (Durosaro, 2000). As a result of these, the indices of health and education includinginfant and maternal mortality rates, life expectancy at birth, population per physician, adultliteracy rate, gross primary and secondary enrolment ratio have been low in Nigeria. In thesame vein, the level of resource commitments to health and education compare veryunfavorably with the situation in other developing countries. The most pressing issue has todo with whether such expenditures have any significant improvement in human capitaldevelopment and whether they have translated into the growth of the economy. This isworrisome 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 ofachieving education for all by the year 2015, Nigeria is still lagging behind. According toCentral Bank of Nigeria (CBN, 2000), poor financial investment has been the bane ofNigerian education system to the extent to which the budgeting allocation has been very lowcompared to others. Available statistics from CBN statistical report of various years show thatgovernment expenditure on education and health have continued to fluctuate in Nigeria, aswell as the characteristic pattern of the government‘s allocation to education and health inNigeria as a percentage of the total budget has revealed inconsistency. That is, health andeducation 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 differentregimes of government in Nigeria via expenditure pattern on human capital development.
6The justification for higher government spending is often based on the impact onindividual‘s life time income. According to Jhingan (2002) lack of investment in human capitalhas been responsible for the slow transformation of the developing countries compared to thosein other developed countries. Thus emphasis on increasing expenditure on education andhealth is generally justified on the basis that such spending increases enrollment rate inschools, literacy level in that economy and reduces the impact of diseases on the productivelife of the population, as better health improves expectation of life which increases high lifeexpectancy in that economy. Despite the effort of the government to boost its expenditure onhuman capital development the outcomes are still questionable. This is particularly worrisomeas this work tends to answer the following questions:1 To what extent has the government expenditure – education and health on humancapital development impacted on economic growth?2 What is the nature of the relationship between government expenditure – educationand health on human capital development outcomes?3 Is there any significant difference in human capital development – education andhealth in military and civilian regimes?1.3 Objectives of t he studyThe broad objective of this study is to analyze government expenditure on human capitaldevelopment 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 hasimpacted on economic growth in Nigeria.2 To determine the causal link between government expenditure (education and health)and human capital development outcomes in Nigeria3 To determine the differences between impacts of government expenditure on healthand education on economic growth in democratic and military regimes in Nigeria.
71.4 Research hypothesisThe following hypothesis will be tested;Ho; Government expenditure on human capital development has not impactedsignificantly on economic growth.Ho; There is no causal link between government expenditure on human capitaldevelopment outcomes in NigeriaH0; There is no significant difference in the impact of government expenditure onhealth and Education on economic growth in military and civilian regimes inNigeria.1.5 Significance of studyThis work will produce an updated literature which will be used as an important materialfor future researchers in this area and as well as assist students in the provision of a functionalframework on which future research on this area can be carried out. Also the result of thisstudy will be informative as to whether the existing investment in human capital developmentis productive. This work will also be of great importance to the government which has in itshands the authority and responsibility over important input indicators of human capitaldevelopment, Also the results of this study will be helpful to policy makers in designingappropriate policies aimed at utilizing the human resources of the country, giving priority tothe development of human capital. It will also show which regime (civilian or military)impacted more on economic growth through their expenditure pattern, which the informationwill be useful for planning and policy making.1.6 Scope of studyThis study will focus on Nigeria; the scope will be limited to the education and healthsectors as important components of human capital. The variables of interest will be: federalgovernment capital and recurrent government expenditures on education and health, grossenrollment 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 coverthe period from 1979-1983, 1999 - 2011.
8CHAPTER TWOLITERATURE REVIEW2.1 CONCEPTUAL FRAME WORKGovernment expenditures refer to the expenses that the government incurs for its ownmaintenance, for the society and the economy as a whole. Government spending reflects thepolicy choices of government; this expenditure is classified under capital and recurrent. Thisgovernment spending toward education and health is driven by the objective to positivelyaffect growth through improvement on outcome such as; school enrolment, primary,secondary and tertiary and literacy rate on the part of education and life expectancy, infantmortality rate and so on, on the part of health. Using capital and recurrent expenditure oneducation and health provides an insight into the investment priorities of government whilethe enrolment and literacy rate are chosen because these measures are appropriate forassessing the accumulated achievement of a country or for estimating the contribution ofexpenditure on education to economic growth. On the part of health, the two variables arechosen because government health expenditures are not monolithic and often consist ofbudgets 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 lifeexpectancy as an example of an outcome from secondary care while the commonly usedmeasure for (health) human capital is the life expectancy. Afterward the outcomes could havedirect effects in the same and opposite directions and that spurs economic growth. Lifeexpectancy is defined by the United Nations as the average number of life years since birthaccording to the expected rate of mortality by age. Jacobs and Rapaport (2002) shows thatanalysts prefer to focus on a survival time indicator because it emphasizes the duration ofhealth status and places implicit importance on a person‘s well-being. For example, Anandand Ravallion (1993) using cross-sectional data for 22 developing countries in 1985 find thathealth expenditure raises life expectancy.
9Figure 1 explains a flowchart of inter-connectivity of choice variables.Source; Field work (2012)2.2 THEORETICAL FRAMEWORK2.2.1 THE THEORIES ON INCREASING PUBLIC EXPENDITUREPublic expenditure on infrastructural facilities plays an important role in stimulating theeconomy. The mechanism through which this government spending on public infrastructureaffect the pace of economic growth depend largely upon the precise form and size of totalpublic expenditure allocated to economic and social development projects in the economy. Ingeneral, different theories on the relation can be roughly classified into different economicschools of thought, like: THE KEYNESIAN vs CLASSICAL VIEW AND WAGNER’S ANDWISEMAN - PEACOCK THEORY18.104.22.168 Keynesian vs classical view, Keynesian view assumes that government expenditureis an instrument of the state in exerting fiscal policy and with this instrument influenceseconomic growth while the Classical and the Neo classical Economists do not see any reasonwhy government should intervene in the economy. Keynesian school of thought advocates theuse of fiscal instruments to stimulate economic activities in time of recessions. While theClassicists are of the opinion that the market forces will automatically bring the economy toGovernment expenditureAllocation compositionCapital and Recurrent HealthEducationOutcome OutcomePrimary, secondary and tertiaryenrollmentLiteracy rateLife expectancyInfant mortalityEconomic growth
10long run equilibrium through adjustment in the labor market. Keynesian argued that marketmechanism regulation of the economy will fail to propel the economy back to equilibrium inthe face of any maladjustment due to the rigidities inherent in the labor market. Thus,Keynesian thought, prescribed expansionary fiscal policies to avoid long recessions, becauseof the effects of crowding out phenomena, that there is the tendency for public goods to besubstituted for private goods; this will create a gap in the private spending on some economicactivities like education, health and other goods and services. The Classical school foundfiscal policy to be ineffective, that, the pressure of the public sector to increase their spendingmay compel them to source for financial resources in the credit market. This will result intohigher interest rate which may hamper private investment.22.214.171.124 Wagner and Wiseman-Peacock theory, Wagner revealed that there are inherenttendencies for the activities of different layers of a government (such as central, state and localgovernments) to increase both intensively and extensively. He maintained that there was afunctional relationship between the growth of an economy and government activities with theresult that the governmental sector grows faster than the economy. However Nitti (1903) notonly supported Wagner‘s thesis but also concluded with empirical evidence that it was equallyapplicable 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 increasingpublic expenditure. But on the other hand, Wiseman and Peacock in their study of publicexpenditure in UK for the period 1890-1955 revealed that public expenditure does notincrease in a smooth and continuous manner, but in jerks or step like fashion. At times, somesocial or other disturbance takes place creating a need for increased public expenditure whichthe existing public revenue cannot meet.2.2.2 EXOGENOUS AND ENDOGENOUS THEORIES ON HUMAN CAPITAL126.96.36.199 The Traditional Neoclassical Growth Theory (Exogenous) Traditionalneoclassical growth models championed by Solow and Swan in the 1950s attribute outputgrowth to the impacts of physical capital and population, neglecting human capital as animportant input. The notion of growth as increased stock of capital goods was codified as
11exogenous growth model; which involves a series of equation which showed the relationshipbetween labor time, capital goods, output and investment. This model, by Solow and swamwas the first attempt to model long-run growth analytically. This model assumes thatcountries use their resources efficiently. The predictions of this classical model were:increasing capital relative to labor creates economic growth; poor countries with less capitalper 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 createeconomic growth. This point is called Steady state. This model also notes that countries canovercome this steady state and continue to grow by investing new technology. The process bywhich countries continue to grow is exogenous and represents the creation of new technologythat will allow production with fewer resources. Two major drawbacks of this theory include:the impossibility of analyzing the determinants of technological progress within itsframework; the failure of the model to explain the large differences in the residuals acrosscountries with similar technologies. These led to a widespread discontentment with theneoclassical models (Todaro, 2003).188.8.131.52 New Growth TheoryThe theory much better suit this work is endogenous growth theory. This is because ofthe inclusion of human capital in the model as the model predicts that the economy can growforever as long as it does not run out of new idea. Since the literature on endogenous growthfocuses on the dynamic impacts of human capital stock on growth; it proves to be reasonableto state that government expenditures as the integral part of human capital may have long-runeffects on economic growth. Thereby, the insights of endogenous growth theory, in whichprovision of human capital adds much to the rate of growth of economies rather than theinitial level of per capita product of countries is of much more relevance to the disaggregatedanalysis 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 endogenousgrowth theory indirectly provides the government with a theoretical justification in order toactively engage in projects to promote growth process in the context of expenditures onhuman capital heading for augmenting output per capita through provision of sound healthand education services.
12The endogenous growth theory or new growth theory is developed as a reaction to theflaws of the neoclassical (exogenous) growth theory. Romer endogenous growth theory wasfirst presented in 1986 in which he took knowledge as an input in the production function. Themajor assumptions of the theory are: increasing returns to scale because of positiveexternalities; human capital (knowledge, skills and training of individuals) and the productionof new technologies are essential for long run growth; private investment in research anddevelopment is the most important source of technological progress; knowledge or technicaladvances are non-rival good. In the New growth theory, the savings rate affects the long runeconomic growth because in this framework, a higher level of savings and capital formationallows for greater investment in human capital development. The model predicts that theeconomy can grow forever as long as it does not run out of new ideas or technologicaladvancement.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 iLi - Labour stock of firm iThe Ri actually represents the technology prevalent at the time in firm i. Any new researchtechnology 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 beincreasing. In this model new technology is the ultimate determinant for long run growth andit is itself determined by investment in human capital development. Therefore, Romar takesinvestment in human capital as endogenous factor in terms of the acquisition of newknowledge because in this framework, investment in education and health allow for greatergrowth in human capital development.The first generation of endogenous growth models, in which the rate of technologicalprogress varies from country to country depending on local economic conditions, predicts apermanent effect on the growth rate. The growing focus on the Millennium Development
13Goals (MDGs) has further highlighted the importance of making tangible progress inindicators 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 otherdiseases. All these MGDs have strong linkages to education and health. The overarching goalis the eradication of extreme poverty, for which the development of human resources througheducation and health is key. By endorsing these goals, countries essentially recognizeeducation and health as priority areas for investment action and policy formulation.2.3 THEORITCAL LITERETURE2.3.1 The concept of human capitalThere are different definitions and views of human capital by different scholars, thoseviewing human beings as capital rooted in economic thought has been looked at by manyeconomists including Adam Smith (1776). He defined human capital as all the acquired anduseful abilities of all inhabitants of the country. Irving Fisher (1906) looked at the concept ofhuman beings as capital while Marshall (1890) however, did not believe in treating humanbeings as capital, instead rejected the notion of "Human Capital" and defined Capital as "allstored up provision for the production of material goods, and for the attainment of thosebenefits, which are commonly considered as part of income". Capital to him consists ofknowledge 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 1960s as a result ofmany economists efforts such as Schultz (1971) who is considered as the founder of thehuman capital theories. Schultz observes that the failure to treat human resources explicitly asa form of capital, as produced means of production, and as the product of investment, hasfostered the retention of the classical notion of labour as a capacity to do manual workrequiring 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 himthe concept of capital consists of entities that have the economic property of rendering futureservices of some value and should not be confused with capital as a fungible entity
14The concept of human capital refers to the knowledge, skills, attitudes, physical andmanagerial effort required to manipulate capital, technology, and land among other things, toproduce goods and services for human consumption (UNECA, 1990).Romer (1994) defineshuman capital as a factor of economic growth, which captures the abilities, skills andknowledge of workers. Adamu, (2002) revealed that human capital refers to the abilities andskills of human resources of any country. This shows that human capital is a form of resourcethat can be acquired, built up and developed, while Igun (2006) defines human capital as thetotal stock of knowledge, skills, and competence‘s innovative abilities possessed by thepopulation.2.3.2 Human capital development in NigeriaThe urge in Nigeria to invest in human capital development could not have been for thesake of investment alone, but in line with the national philosophy. At best, for any meaningfuland rapid transformation to take place in Nigeria, it is considered more reasonable toconcentrate on the improvement and development of the available human resources(Akinbote, 1988). In Nigeria, effort toward commitment to investment in human capitalbegan in 1959, which was immediately after her independence when Ashby Commission wasset up to conduct an investigation into Nigeria‘s needs in the field of post-school certificateand higher education for the subsequent 20 years. The Commission documented report whichwas submitted in 1960 with the help of leading and seasoned expert in human resourcematters, Frederick Harbison. That report led to massive investment in education which wasthen seen as the only means of human capital formation.Investment in those areas is well appreciated and understood in an economy that aspiresto attain sustainable growth, because investment in these human resources means expenditureon education and health and other social services in general. Hence any country that does notpay 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 stressedif the country has to be efficient and competitive in the new world order in which nationalfrontiers no longer constitute barriers to human, material, and capital flows.(Owolabi andOkwu, 2010).
15The government set up National Economic Empowerment and Development Strategy(NEEDS), which is presently Nigeria‘s development plan documented and stipulates a goal ofincreasing government‘s budgetary allocation to health, road, security, education and so on inits effort to boost human capital sectors, The programme include; to address the crucial issuesto improve education and health infrastructure and expand institutional capacity to producequality manpower which will expand total school enrolment. As a result of that, the federalgovernment recently licensed more federal universities in effort to absorb all candidatesseeking admission into national universities. This shows commitment on the part of theNigerian government to develop her human resource. Furthermore, additional privateuniversities had also been licensed and more are still expected to be given license since thenumber of students seeking admission into tertiary institutions is on the increase in thecountry 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 isseen as the equity-oriented health and development strategy focusing on the most healthintervention for the most common health problems in communities. With the soleresponsibility for educating the communities with health problems, preventing and controllingof locally endemic diseases and promotion of food supply and nutrition‘s etc. While thesecondary health care exist to provide specialized services to patients referred from theprimary health care level. Secondary health care is expected to provide administrative supportto and supervision to subordinate, while the tertiary health care which is the apex bodyspecialized in providing care for specific cases and conditions. As better health care is aprimary human need, fifty percent of economic growth differentials between developed anddeveloping nations are attributable to ill-health and low life expectancy (World HealthOrganization, 2005).2.3.3 Profile of Federal Government Expenditures on Education and Health Sectors inNigeriaNational development agenda are premised on economic growth which is a necessarycondition for development. However, the growth in the public sector appears to apply to mostcountries regardless of their level of economic and political development (Essien & Bawa,
162005). The aim of government is to attain better allocation and distributional equality throughimproved disbursement of public goods. Similarly, the Nigerian government‘s expenditureperformance in education and health care sectors has experienced periods of improvement anddecline. Good performance in these areas is essential to development and numerousgovernments recognized this in their policy statementsData on federal government expenditure on human capital (health and education) inNigeria is not mute for the period 1970 – 2011. Public total health expenditure in the 1970switnessed fluctuating trend. In 1970, it stood at N25.18 million and decline in 1973 to N21.36million. It later rose to N76.99 million, N158 million in1975 and 1980 respectively, but itdeclined sharply a year later to N141.82million. It rose again to N587.7 million in 1990 andthereafter continued to fluctuate with a declining trend until 1996 when it rose toN2098.08million. It stood at N15245.28 million in 2000, N34187.74 million in 2004 andN55675.33 million in 2007 and N90213 million in 2009. While on the part of educationsector, the federal government spent a total of N25.84million and N963.77million in1970 and1975 respectively and in 1979 expenditure decline to N764.53 million. By 1980, totaleducational expenditure increased to N2612.51 million, decreasing to N1412.6 million 1985and N918.11 a year after, while in 1990 it increased to N4498.8 million and N18962 millionin 1990 and 1995 respectively, while in 2000 and 2006 expenditure stood at N85921.84million and N165975.86 respectively.(CBN,2010). Till date expenditure on education sectorhas been on the increase, this might be attributed to the effort of the government to meet upwith 26 percent recommended by UN. Also the governments of Nigeria, over the years havebeen making frantic efforts at ensuring that there is an increase in the level of publicexpenditure on health, as poor health conditions harm the productivity of the citizens, thus, thelevel of government expenditure on health determines the ultimate level of human capitaldevelopment which eventually leads to better, efficient and productive investment in othersectors of the economy (Akran and Khan, 2007).2.3.4 The Role of Education as Component of Human CapitalThe role of education in human capital development and growth of Nigeria economy hasbeen underscored in many studies. Education, as a key component of human capital formationis recognized as being vital in increasing the productive capacity of people. It increases
17knowledge which helps to produce more output in relatively smaller time and also it isintuitionally suggested that an educated person could learn much faster. Sen (1985) opinedthat education helps provide human capabilities, which is ― important and individual power toreflect, make choice, seek a voice in a society and live a better life‖ as such governmentshould increase awareness programme in the education sector and invest in that area. WorldBank (2000/2001) showed that investment in education and other forms of human capitalparticularly health is an important element of poverty strategy, hence, increase in the level ofeducation will also lead towards better health due to an increase in the awareness of thebenefits of healthy living, which in turn increases the output. However, education alsoenhances the labor force participation in an economy due to the higher labor forceparticipation rate, along with education, the role of experience is also very important inproductivity growth, as experience generally reduces the chances of errors and increases theoutput in a given time period.In effort to boost education in Nigeria, the report of Ashby Commission came up withexpansion of the educational sector to 6-3-3-4 education system in 1984. Where pupils nowspent six years to get primary education, six years in secondary school (three years of juniorsecondary 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 ineconomic development, it embarked on quantitative and qualitative measures of expansion ofeducational facilities at all levels because of its presumed advantages. The Federalgovernment is principally responsible for the funding of tertiary institutions; secondaryeducation is mainly a state responsibility though there are some federal secondary schools.Primary education is a local government responsibility. The level of expansions in theeducational 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 in1976 and 93.80 and 104.41 percent in 1980 and 1984 respectively there were decliningthereafter to 86.62 in 1995 and 1999 and 2007 enrolment rate were 93.00 and 94.18 percentrespectively, while at 2010 enrolment stood at 83.28 percent. The secondary enrolment was4.26 percent in 1970; it raised further to 13.45 and 28.90 percent in 1980 and 1985respectively, enrolment rate declined to 23.88 percent in 1989, rising afterwards to 31.89
18percent in 2003, in 2005, it stood at 34.44 percent while 2008 and 2010, secondary enrolmenthad risen steadily, and stood at 38.99 and 44.05 percent respectively. The tertiary educationsector enrolment rate was 0 .71 percent in 1975, this later rose to 1.78 and 3.35 in 1980 and1985 respectively. While from 1999 enrolment stood at 6.01 percent they had been anincrease in 2003, 2007 from 9.73 to 10.26 percent, (UNESCO, 2010). Hence a close look atthis trend shows that Nigeria government from 1999 till date, have underscored the need toinvest substantially in the educational sector, this is noticeable improvement that should besustained. As there is evidence those higher rates of school enrolment raise growth ( Mankiwet al., 1992).2.3.5 The Role of Health as a Component of Human CapitalIt 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 moretime in the labor force, as less healthy people take sickness absence or retire early; (c) theymay invest more in their own education, which will increase their productivity; and (d) theymay save more in expectation of a longer life—for example, for retirement—increasing thefunds available for investment in the economy (Bloom, 2000 and Canning, 2003). Health isgenerally connected with economic growth and sustainable development; because of theevidence that investing in health brings substantial benefits to the economy. Considering theindices 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, buttoday, corruption has purge the country into high level of poverty, high cost of living, lowaverage life expectancy, high rate of communicable diseases and increase in mismanagementof her resources etc. A lot of resources has been spent on the health sector, but the mostpressing issue has to do with, whether such expenditures have any significant impact on thehealth of the nation‘s population and whether they have translated into the growth of theeconomy (Dauda, 2011).In a study on government spending on health as a percentage of GDP embarked for someselected African countries, it was ascertain that Nigeria devote the least percentage of her totalexpenditure to health when assessed with other selected African counties. For instance in1997 Nigeria devoted only 2.8 percent of total spending of her GDP to health sector financing.
19This figure in 1999 rose to 3.0, while a further increase of 3.4 percent was noticed in 2000.While Cote Divore and Ghana within the same period of 1997 and 1999 devoted 6.2 and 4.1percent respectively to health sector financing, the spending on health financing for CoteD‘Ivore was sustained throughout the years up till 2000, while Ghana was reported to haveincreased her budgetary spending for health from 4.1 percent as noticed in 1997 to 4.7 percentin 2000 (WHO Report, 2004).It is assumed that improvement in health leads to improvement in life expectancy which isa robust indicator of human capital development, a simple channel through which healthaffect human capital development is by improving living conditions. As living conditionsimprove, human longevity is expected to improve and vice-versa. Taking life expectancy ofNigeria 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 1990it stagnated at 45 years 10 years after. marginal increase were noticed by 2000 to 46 years, by2005, it was given as 47 years and still remained at 47 years by 2009 notwithstanding thehuge expenditure by the government on health.An increasing life expectancy at birth by 10% will increase the economic growth rate by0.35% 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 alsoan instrument for raising income levels. The level of productivity and growth in an economywill be greatly hampered by ill-health or prevalence of diseases in such an economy. This isbecause the likelihood exists that healthy individuals have the tendency to think rightly, bemore efficient and obtain higher productivity. There is consensus that expansion in the skills,knowledge, and capacities of individuals, increasing human capital, is critical for economicgrowth and poverty reduction. However, despite increase in government health and educationspending in recent decades as shares of both GDP and total government spending, humancapital investments, particularly in Sub-Saharan Africa, are performing poorly with lowschool enrollments and growth in child labour often performed at the expense of educationand inadequate health.
202.4 EMPIRICAL LITERATUREThere has been numerous research works on human capital development on cross-countryand country specific studies, these macro studies continued to produce inconsistent andcontroversial results (Pritchett 1996). Reason being there are three streams of studies onhuman capital development. The first and second streams studies usually focus on eithercomponent of the human capital and growth nexus, education or health and the last streamsfocuses on both components.Few of those works includes: Knowles and Owen (1997), Abbas (2001), Hamoudi andSachs (1999), Aka and Demount (2008), Mostafizur (2011) for other countries and Owolabiand Okwu (2010), Lawnson (2009), Maku (2009), Chete and Adeoye (2002) for Nigeria aresome of the notable papers in this respect. In the study of the joint development ofgovernment expenditures and economic growth in 23 OECD countries conducted byLamartina and Zaghini (2007) showed that there is a structural positive correlation betweenpublic spending and per capita GDP. Thus an increase in government‘s spending on humancapital development is expected to culminate in an increase of per capita output. The impactof an aggregation of capital and recurrent expenditures on health and education and itsoutcomes has not been sufficiently addressed by researchers.Knowles and Owen (1997) formulated a structural growth equation that incorporatededucation and health as labor- augmented variables in aggregate production function andassessed the impact of education and health on economic growth in the effective laborempirical growth framework. They used the cross-section data collected from 77 countriesgrouped in different sub-samples; they measured education and health by average years ofschooling and life expectancy at birth, respectively. Then, they applied non- linear instrumentvariables (NLIV) estimating methods and their result suggests that a strong positiverelationship exists between health and economic growth while the effect of education wasfound to be insignificantAbbas (2001) empirically investigated the affect of human capital on economic growth inPakistan and Sri-Lanka. The production function used in the study was a standard humancapital augmented production function in which the output growth depends on labor, physical
21capital and human capital. The ordinary least square (OLS) method was applied on an annualdata series from (1970-1994). Enrolment rates at primary, secondary and higher secondarylevels were taken as a proxy for human capital in the study. Human capital was found to bepositively 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 levelrespectively.Blooms and Sachs (1998), as cited in Hamoudi and Sachs (1999), provided empiricalevidence on the relationship between health variables and economic growth rates and foundthat health variables play a significant role in determining economic growth rates. Theyshowed this by investigating cross-country data between (1965-1990), using a basic growthmodel, and they found that an increase of life expectancy by one percent accounted for anacceleration of GDP per capita growth by over 3% per annum. In addition, health anddemographic variables explained over half of the differences in growth rates between Africaand 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 theperiod (1990–2009) and with the use of Augmented Solow Growth Model, he includededucation expenditure and health expenditure as education and health capital. From the ErrorCorrection Model (ECM) methodology he found out that an inclusion of health and educationexpenditure as an investment in health and education capital improve the significance of thecoefficient of human and physical capital in the growth model for Bangladesh. Secondly, hefound 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 causalityfrom education expenditure to GDP and also from education expenditure to healthexpenditure 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 theperiod (1929-1997). They find out cointegration between the variables under study. TheECM-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 otherhand, causality is found between health and economic growth and not the reverse. They went
22ahead to perform variance decomposition and impulse response functions to see theimportance of the impacts among these variables. The results show that the long-run dynamicsof growth are slightly explained by past health and education level, and the health levelaccount for 10% of the evolution of education in the long run.Nabila, Asma and Hafeez (2012) investigate the role of human capital in terms ofeducation 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 Juseliuscointegration test whereas the long-run and short-run dynamics are observed by VECMspecification. For causality purpose both VECM based causality and Toda-Yamamotocausality tests are employed. Stability of the model is confirmed through CUSUM andCUSUMSQ. The results indicate strong positive impact of human capital on economic growthdespite the fact that Pakistan has been spending less percentage of GDP on education andhealth facilities to create human capital. The study recommended that in order to reapmaximum benefits from human capital there is a need to formulate and implement effectiveeconomic policies related to the provision of education and health facilities to the people.Chete and Adeoye (2002) investigated the empirical mechanics through which humancapital influences economic growth in Nigeria. They attempted to achieve this objective usingVAR analysis and OLS to capture the influences. They, however, concluded that there is anunanticipated positive impact of human capital on growth, and effort of various Nigeriagovernments since the post independence have appreciated by prodigious expansion ofeducational infrastructure across the country; but they are quick to point out that the realcapital 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, labourand human capital proxied by total enrolment in educational system to real Gross DomesticProduct. The result showed that physical capital exerted a positive and very statistical impacton economic growth. Its coefficient was statistically different from zero at 5% significantlevel, labor force had positive but statistically insignificant on economic growth. On humancapital variable, it was human capital from primary school education that was statistically
23very significant on the growth of Nigeria economy, while in the case of tertiary education theresult failed totally with priori expectation.Babatunde and Adefabi (2005) investigated the long run relationship between educationand economic growth in Nigeria between (1970-2003) through the application of Johansencointegration the result discovered a long run relationship between human capitaldevelopment (proxied by schools‘ enrolments in primary and tertiary institutions and averageyears of schooling) and economic growth measured by output per worker. Their result showedthat education has a statistically significant positive relationship with economic growth.However, they did not give consideration to government health expenditure as a humancapital component in the model specified and estimated.Adenuga (2006) examine the relationship between economic growth and human capitaldevelopment using Nigerian data from (1970-2003). They applied cointegration theoryincorporating the ECM and found that investment in human capital, through the availability ofinfrastructural requirements in the education sector accelerates economic growth. The workthen concludes that there can be no significant economic growth in any economy withoutadequate human capital development. However, in Nigeria, focus was on accumulation ofphysical capital for growth and development without adequate attention to the important roleplayed by human capital in the development process.Maku (2009) examine the relationship between total government spending and economicgrowth in Nigeria over 30 years (1977-2006). He regressed real GDP on private investment,human capital investment, government investment and consumption spending. His resultshows that human capital investment as a share of real output has positive but statisticallyinsignificant effect on the growth rate of real GDP. He concluded that governmentexpenditure had no significant influence on economic growth in Nigeria. Based on hisanalysis, it is reveals that the variables have not maintained a uniform pattern in the period ofstudy owing to persistent random shock effects on the time series. From his report the rate ofgovernment expenditure to real GDP has been rising since the Structural AdjustmentProgramme (SAP) without significant contribution to economic growth in Nigeria. This heattributed to lack of government monitoring of the contract awarding process of capitalprojects, ineffective deployment of government funds to productive activities, and lack oftransparency and accountability by the government on government spending. However, it is
24our 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 ineconomic growth in Nigeria from (1983-2007). The study employed quantitative analysisapproach. The variables considered were government expenditures on education and health,primary education enrolment rate, secondary education enrolment rate, tertiary educationenrolment rate and gross domestic product. The major tool of analysis is a multiple regressionanalysis model (MRS). Were they treated gross domestic product as the explained variableand the others as the explanatory variables, The model was estimated via OLS techniques,The result showed that only secondary and tertiary education enrolment rates exertedstatistically significant effect on economic growth in Nigeria. The others exerted positive butinsignificant effect on economic growth. However, the explanatory variables jointly exertedsignificant effect on growth. No outcomes of heath expenditure were included in their studylike (infant mortality and life expectancy).In a similar study by Oluwatobi and Ogunrinola (2011) they examine the relationshipbetween human capital development and economic growth in Nigeria, from (1970-2008), theaugmented Solow model was also adopted. The dependent variable in the model is the level ofreal output while the explanatory variables are government capital and recurrent expenditureson education and health, gross fixed capital formation and the labour force. It seeks to find outthe impact of government recurrent and capital expenditures on education and health inNigeria and their effect on economic growth. The data used for the study are from secondarysources while The result shows that there exists a positive relationship between governmentrecurrent expenditure on human capital development and the level of real output, while capitalexpenditure is negatively related to the level of real output. The study recommendsappropriate channelling of the nation‘s capital expenditure on education and health to promoteeconomic growth. Yet no outcome of health indicator were considered in this study2.5 LIMITATIONS OF PREVIOUS STUDIESAfter reviewing empirical literature on the subject matter, it is evident that in case of crosscountry studies empirical results remained inconclusive whereas in a single country analysismost studies supports positive association between human capital and economic growth. Thus
25literature has proved overtime that there is the possibility that the relationship that existed inthe 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 ofopinion in the literatures on human capital development emanated from various streams ofhuman capital nexus used by different scholars, as these seems to suggest that the study hasbecome an important empirical debate among researchers and policy makers.Moreover the choice in the use of different variables to capture human capital, differencesin locations (regions where studies are undertaken) and heterogeneities among countries andthe inaccuracy of data contributed to differences in results. Sometimes, understanding the roleof education and health by collapsing developed and developing countries in the same sampleat a time may not be informative since growth processes and determinants in these extremeworlds may not necessarily be the same. Thus, there is a need to treat developing worldseparately.Until recently, investment in education was seen as the only means of increasing humanresource for better economic performance. Little or no attention was paid to health; but thereis no doubt that health as a component of human capital is very essential for growth anddevelopment. So most of the empirical research conducted on the subject matter on Nigeriaeconomy has defined human capital in terms of education indicators or in terms of healthindicators. 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 ofhuman capital in the context of Nigeria economy. The present study is an attempt to usebroader measure of human capital as it uses education index and health index as proxies forhuman capital.This work is designed to analyze government expenditure on human capital developmentand economic growth in Nigeria and also ascertain the variation of expenditure on humancapital development between civilian and democratic regimes in Nigeria. This study istherefore carried out to fill some of these gaps identified above, as government expenditure onhuman capital development (education and health) on economic growth related issues onNigeria are scarce to come by as health which is one of such variables which is important inexplaining growth but usually, and mistakenly ignored by growth accountants and somescholars, will be included in this work.
26CHAPTER THREERESEARCH METHODOLOGY3.1 ANALYTICAL FRAMEWORKThe specification of the relationship between human capital and growth is well groundedin economic theory. One of such is augmented Solow human capital growth model. Themodel is an improvement on the original growth model. Solow original model did notexplicitly 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 inthe model is the fact of non-homogeneity of labour in the production process either within anation or across different economies due to their possession of different levels of educationand skill.This modification facilitates the suitability and hence, the adoption of this model for thisworks in the Nigerian context. Following Mankiw, Romer and Weil (1992) and Olaniyan andOkemakinde (2008). The basic assumption in this model is that increase in workers qualitythrough improved education and health, improve output and ensures greater productivity.Thus the Augmented Solow Model is therefore specified as follows;Y= AKα(hL)β----------------------------------------------------------- (1)whereY = Output levelK = Stock of physical capitalh = Level of human capitalL = Labor, measured by number of workersA = Level of total factor productivityα= Elasticity of capital input with respect to outputβ= Elasticity of labour input with respect to output3.2 ECONOMETRIC SPECIFICATIONThe augmented Solow model can be specified in an econometric form as follows:Y= AKα(hL)βU ----------------------------------------------------- (2)
27where the variable remain as defined in equation (1) above,U is the error term which is assumed to iidWe further transform equation (2) into a log-linear form, and it becomesLog Y = α0+α1logK+ βlog hL+V-------------------------------------- (3)where α0 = logAV = log UIn order to make equation (3) more relevant to this work and more suitable to theNigerian situation, we modify the model to accommodate other variables. These variablesinclude government capital expenditure on education and health (CE) and recurrentexpenditure on education and health (RE). These two variables are incorporated to capturegovernment expenditure on human capital development, since this study is focused ongovernment investment in human capital development and its effect on economic growth.When we incorporate these new variables in equation (3) the expanded form becomesLogY = α0 + αIlogK + βloghH + α2logRE + α3logCE + V----------------------------(4)whereLogY = 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 oneducation and health that is CE and RE.Based on the above formation, the model can be written asRGDP = α0 + α1GFCF + α2TSE + α3RE + α4CE + V------------------------------- (5)The a priori expectations areα0, α1, α2, α3, α4 > oEquation (5) shall be estimated using (OLS)
283.2.1 Model twoFollowing the work of Craigwell, Lowe and Bynoe (2012), this study will adopt theirmodel with modifications. Hence we introduce new variables in the model in order to suit ourobjective. The relationship between government expenditure and human capital developmentoutcomes can be specified in the following equations.The health regressions are modeled as follows:HE = α0 + α1X1 + α2Z2 + α3Y3 + Ut ---------------------------------------- (1a)whereHE = health, proxied by life expectancyX1 = is a vector of investment comprising of recurrent expenditure on health as a percentageof total government expenditure;Z2 = is a vector of investment comprising of capital expenditure on health as a percentageof total government expenditure;Y3 = is a vector of infant mortality rateUt = white noiseThe education regressions are modeled as follows:EEj = 0 + 1X1 + 2Z2 + 3Y3 + Ut------------------------------------------------ (1b)whereEEj = Education, proxied by total school enrollment for primary, secondary and tertiarygross school enrollmentX1 = is a vector of investment comprising of recurrent expenditure on education as apercentage of total government expenditure;Z2 = is a vector of investment comprising of capital expenditure on education as apercentage of total government expenditure;Y3 = is a quality variable proxied by literacy rateUt = white noise3.2.2 Model ThreeTo capture the third objective we introduce a dummy variable to capture the variableadministration/ regime in the country during the period of study.H = π0 + π1MIL + µ ………………………. (8)
29Where H = human capital development expenditure in Nigeria comprising of capital andrecurrent expenditure on education and health.MIL = military administration regime.µ = the random term, the base group here is civilian administration, π1 is a dummyvariable which assume one (1) if human capital expenditure is during military regimeand zero (0) otherwise.3.3 MODEL ESTIMATION TECHNIQUESThe first model will be used to capture the first objective; the second model for the secondobjective while the third objective is for the last model. Hence the following techniques shallbe employed in the research work for various tests.In order to strengthen our analysis and findings, we apply a statistical tool ofeconometrics based on OLS. We will carry out a unit root test, to test the order of stationarityof the data set and see if there is a long equilibrium between the variables of interest. Afterconducting the unit root test, we shall be able to identify the order of integration of thevariables, if any of the explanatory variables have the same order of integration with thedependent variable then we may suspect that they are co-integrated and their linearcombinations at their original form without the constant term and save the residual.3.4 DATA SOURCES AND COLLECTIONThe success of any econometric analysis ultimately depends at large on the availability ofappropriate data. However the researcher should always keep in mind that the results of anyresearch are only good as the quality of the data (Gujarati, 2007). The data will be source fromsecondary sources like; World Bank Development Indicators (WDI), National Bureau ofStatistics publication (NBS) and the Central Bank of Nigeria statistical bulletin (CBN).3.5 SOFTWARE PACKAGEThe study will make use of E-view version 4.0 econometric software; while ms-excel willbe use for data computation.
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34TABLE OF CONTENTCHAPTER ONE1.0 INTRODUCTION/BACKGROUND OF STUDY------------------------------------------------------------------ 11.2 STATEMENT OF PROBLEM------------------------------------------------------------------------------------------- 31.3 OBJECTIVE OF STUDY-------------------------------------------------------------------------------------------------- 51.4 STATEMENT OF PROBLEM--------------------------------------------------------------------------------------------- 61.5 SIGNIFICANT OF PROBLEM-------------------------------------------------------------------------------------------- 61.6 SCOPE OF STUDY---------------------------------------------------------------------------------------------------------- 6CHAPTER TWO2.0 LITERETURE REVCIEW/CONCEPTUAL FRAMEWORKS------------------------------------------------------- 72.2 THEORETICAL LITERATURE REVIEW------------------------------------------------------------------------------ 82.2.1 THE THEORIES ON INCREASING PUBLIC EXPENDITURE--------------------------------------------------- 184.108.40.206 KEYNESIAN AND CLASSICAL VIEW----------------------------------------------------------------------------- 220.127.116.11 WAGNER AND WISEMAN-PEACOCK THEORY---------------------------------------------------------------- 92.2.2 EXOGENOUS AND ENDOGENOUS THEORIES ON HUMAN CAPITAL----------------------------------- 18.104.22.168 THE TRADITIONAL NEOCLASSICAL GROWTH THEORY (EXOGENOUS) ------------------------------22.214.171.124 NEW GROWTH THEORY------------------------------------------------------------------------------------------------102.3 THEORITCAL LITERETURE------------------------------------------------------------------------------------------------122.3.1 THE CONCEPT OF HUMAN CAPITAL---------------------------------------------------------------------------------122.3.2 HUMAN CAPITAL DEVELOPMENT IN NIGERIA ------------------------------------------------------------------132.3.3 PROFILE OF FEDERAL GOVERNMENT EXPENDITURES ON EDUCATION AND HEALTH SECTORS INNIGERIA -----------------------------------------------------------------------------------------------------------------------------142.3.4 THE ROLE OF EDUCATION AS COMPONENT OF HUMAN CAPITAL-----------------------------------------152.3.5 THE ROLE OF HEALTH AS A COMPONENT OF HUMAN CAPITAL-------------------------------------------172.4 EMPIRICAL LITERATURE---------------------------------------------------------------------------------------------------192.5 LIMITATIONS OF PREVIOUS STUDIES ---------------------------------------------------------------------------------23CHAPTER THREE3.1 RESEARCH METHODOLOGY/ANALYTICAL FRAMEWORK----------------------------------------------------- 253.2 ECONOMETRIC SPECIFICATION------------------------------------------------------------------------------------------253.2.1MODEL TWO--------------------------------------------------------------------------------------------------------------------273.2.2 MODEL THREE----------------------------------------------------------------------------------------------------------------273.3 MODEL ESTIMATION TECHNIQUES--------------------------------------------------------------------------------------283.4 DATA SOURCES AND COLLECTION--------------------------------------------------------------------------------------283.5 SOFTWARE PACKAGE---------------------------------------------------------------------------------------------------------28