TOPIC :AN ECONOMETRIC ANALYSIS OF GOVERNMENTEXPENDITURE ON HUMAN CAPITAL DEVELOPMENTAND ECONOMIC GROWTH IN NIGERIAAN M.Sc PROJECT PROPOSAL TO BE PRESENTED TOTHE DEPARTMENT OF ECONOMICSBYEZECHUKWU UCHENNAPG/M.SC/2010/57503SUPERVISOR Dr (Mrs) I S MADUEME
BACKGROUND TO THE STUDY: The belief that human capital is an engine of growth rests on the quality andquantity 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. Most developed nations have long realized the importance of human capital asstrategic effort towards economic development. Hence it is important to assign greater emphasis on the role of human capital as amajor contributor to economic growth and development. Though what is stilldebatable is what factor should be considered as human capital formation
Background Contd This Human capital is often conceptualized as an aggregate function including healthand education (Todaro and Smith, 2003). This health and education are two closely relatedhuman capital components (Lawanson , 2009) Analyzing government expenditure on human capital development and its effects oneconomic growth will be the key to understanding the rationale for the investment in thesector. So national government needs to spend more on education and health but how much tospend and the extent of its impact on the economy is yet to be ascertained. Thus this callsfor an empirical investigation.
STATEMENT OF PROBLEM: Good education and better health care should be the primary objective of any committedgovernment, as endogenous theories postulate that human capital spurs economic growth. The sectoral allocation to them during military regimes and democratic regimes havebeen inconsistent, as this has generated problems of shortage in human capital developmentin Nigeria (Durosaro, 2000). As a result of these, the indices of health and education have been low in Nigeria. Thismade Soludo (2003) to opine that human capital development in Nigeria is still quite low byinternational standard. Despite the effort of the government to boost its expenditure on human capitaldevelopment the outcomes are still questionable.
OBJECTIVES OF THE STUDY To estimate the extent to which government expenditure on health and education hasimpacted on economic growth in Nigeria. To determine the causal link between government expenditure on education andhealth and human capital development outcomes in Nigeria . To determine the difference between impact of government expenditure on healthand education on economic growth in democratic and military regimes in Nigeria.RESEARCH HYPOTHESISH0 Government expenditure on human capital development has notimpacted significantly on economic growth.Ho There is no causal link between government expenditure on humancapital development outcomes in Nigeria.H0 There is no significant difference in the impact of governmentexpenditure on health and education on economic growth in democratic andmilitary regimes in Nigeria.
SIGNIFICANCE OF STUDY This work will produce an updated literature which will be used as an important materialfor future researchers in this area and as well assist students through the provision of afunctional framework on which future research can be carried out. The result of this study will be informative as to whether the existing investment inhuman capital development is productive and will also be helpful for policy makers. This work will also be of great importance to the government which has in its hands theauthority and responsibility over important input indicators of human capital development.
SCOP OF STUDY The scope will be limited to the education and health sector as important componentsof human capital.The variables of interest will be:• Federal government capital and recurrent government expenditures on education andhealth,•Gross enrollment rate in primary, secondary, tertiary educations, literacy rate, infantmortality rate, life expectancy and Gross Domestic Product (GDP).The study will cover the period 1970 – 2011•Military regimes will cover 1970-1978, 1984-1998•Democratic regimes will cover the period from 1979-1983, 1999 - 2011.
REVIEW OF LITERATURE The theoretical framework on increasing public expenditure:•THE KEYNESIAN, NEO CLASSICAL ,WAGNER’S AND WISEMAN – PEACOCK.THEORIES ON HUMAN CAPITAL• The Traditional Neoclassical Growth Theory(exogenous)• New Growth Theory(endogenous) The one much better suit this work is endogenous growth theory, because of the inclusionof human capital in the model as the model predicts that the economy can grow forever aslong as it does not run out of new ideas. This will form the basis of our study, as it can be inferred that endogenous growth theoryindirectly provides the government with a theoretical justification in order to actively engagein projects to promote growth process in the context of expenditures on human capital
THEORITCAL LITERATURETheoretical literature is analyzed in strands as follows:• THE CONCEPT OF HUMAN CAPITAL• HUMAN CAPITAL DEVELOPMENT IN NIGERIA• PROFILE OF FEDERAL GOVERNMENT EXPENDITURE ON EDUCATION AND HEALTHSECTORS IN NIGERIA• THE ROLE OF EDUCATION AS COMPONENT OF HUMAN CAPITAL• THE ROLE OF HEALTH AS A COMPONENT OF HUMAN CAPITAL.EMPIRICAL LITERATURE There has been numerous research works on human capital development on cross-country and country specific studies, these macro studies continue to produceinconsistent and controversial results (Pritchett 1996). Reason being there are threestreams of studies on human capital development. The first and second streams ofstudies usually focus on either (education or health) component of the human capital andgrowth nexus, while the last stream focuses on both components.Few of those works includes: Knowles and Owen (1997), Abbas (2001), Hamoudiand Sachs (1999), Lamartina and Zaghini (2007) Aka and Demount (2008), Mostafizur(2011) for other countries and Owolabi and Okwu (2010), Lawnson (2009), Maku’s(2009), Chete and Adeoye (2002), Babatunde and Adefabi (2005) Adenuga (2006)Oluwatobi and Ogunrinola (2011) for Nigeria are some of the notable works in thisrespect.
LIMITATIONS OF PREVIOUS STUDIES: From the literature reviewed, it is evident that empirical results remain inconclusive.Thus literature has proved overtime that there is the possibility that the relationshipthat existed in the theory may not be replicated in real economy activities given thepresence of some factors, which may not be clearly identified in the theory. Ajisafe etal. (2006). The use of different variables to capture human capital, differences inlocations, heterogeneities among countries and the inaccuracy of data contributed todifferences in results. Most of the empirical research conducted on the Nigerian economy has definedhuman capital in terms of education indicators or health indicators. Therefore, thereis a need to conduct research on this aspect that uses much broader measure of humancapital in the context of Nigerian economy. The present study is an attempt to usebroader measure of human capital as it uses education index and health index asproxies for human capitalThis work will also ascertain the variation of expenditure on human capitaldevelopment between military and civilian regimes in Nigeria.
METHODOLOGYANALYTICAL FRAMEWORK The specification of the relationship between human capital and growth is well groundedin economic theory. One of such is augmented Solow human capital growth model. The model 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.Thus the Augmented Solow Model is therefore specified as follow;Y= AK α (hL) β ----------------------------------------------- (1)whereY = Output level K = Stock of physical capital h = Level of human capital L =Labor, measured by no of workers A = Level of total factor productivity α = Elasticity ofcapital input with respect to output β = Elasticity of labour input with respect to output.ECONOMETRIC SPECIFICATION The augmented Solow model can be specified in an econometric form as follows:Y= AK α (hL) β U -----------------------------------------------(2)where the variable remain as defined in equation (1) above,U is the error term which is assumed to be independently and identically distributed (iid)
When equation (2) is further transform into a log-linear form, it becomesLog Y = α0+α1logK+ βlog hL+ V-----------------------------------(3)whereα0 = logA , V = log UTo make equation (3) more relevant to this work and more suitable to the Nigeriansituation, the model is modified to accommodate other variables. These variables includegovernment capital expenditure on education and health (CE) and recurrent expenditureon 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 economicgrowth.When these new variables is incorporated in equation (3) the expanded form becomesLogY = α0 + αIlogK + αβloghH + α3logRE + α4logCE + 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 schoolenrolment (TSE);
CE & CE =Human capital development proxied by government capital and recurrentexpenditure on education and health.Based on the above formation, the model can be written asRGDP = α0 + α1GFCF + α2TSE + α 3RE + α4CE + V------------------------------- (5)The a priori expectations areα0, α1, α2, α3, α4 > o and Equation (5) shall be estimated using (OLS).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 suitour second objective. Which is specified in the following equations.The health regressions are modeled as followsHE = α0 + α1X1 + α2Z2 + α3Y3 + Ut ----------------------------(1a)WhereHE = health, proxied by life expectancy; X1 = is a vector of investment comprising ofrecurrent expenditure on health as a percentage of 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 rate; Ut = whitenoise.
The 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 enrollment; X1 = is a vector of investment comprising of recurrent expenditureon education as percentage of total government expenditure; Z2 = is a vector of investmentcomprising of capital expenditure on education as a percentage of total governmentexpenditure; Y3 = is proxied by literacy rate; Ut = white noise.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)WhereH = human capital development expenditure in Nigeria comprising of capital and recurrentexpenditure on education and health. MIL = military administration regime. µ = the randomterm, the base group here is civilian administration, π1 = -is a dummy variable which assumeone (1) if human capital expenditure is during military regime and zero (0) otherwise.
MODEL ESTIMATION TECHNIQUES The following techniques shall be employed in the research work for various tests. Inorder to strengthen our analysis and findings, OLS will be used. We also carry out a unitroot test, to test the order of stationarity of the data set and see if there is a long equilibriumbetween the variables of interest. After conducting the unit root test, we shall be able toidentify the order of integration of the variables, if any of the explanatory variables have thesame order of integration with the dependent variable then we may suspect that they are co-integrated and their linear combinations at their original form without the constant term andsave the residua and ADF and augmented dickey fuller test shall then be conducted.DATA SOURCES AND COLLECTIONThe data will be source from secondary sources like; World Bank Development Indicators (WDI), National Bureau of Statistics publication (NBS), Central Bank of Nigeria statistical bulletin (CBN).SOFTWARE PACKAGE The study will make use of E-view version 4.0 econometric software; while ms-excelwill be use for data computation.
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