Testing the Effects of Human Capital Stock and Accumulation on Economic Growth in Nigeria

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CHAPTER ONE
INTRODUCTION
1. Background of the Study
Today’s world economies are ruled by knowledge economy, a kind of economy that offers more promise than the black gold economy. As the global economy shifts towards more knowledge based sectors, for example, the manufacture of ICT devices, pharmaceuticals, telecommunications and other ICT based sectors, R & D, skills and human capital development becomes a central issue for policy makers and practitioners engaged in economic development both at the national and regional level (OECD, 1996). The study of economic growth must start with the study of the people who produce it. They work with their own hands, design, build and operate the machines of production, and structure and run the institutions and markets that make growth possible. Julian Simon concluded that the size of the human population together with the technologies these people produce is the root cause of economic growth (Simon, 2000). He rightly argues that people are the carriers of knowledge, but then goes on to the more controversial assertion that since the discoveries of the past were produced by people, the rate of discoveries must have been influenced by human numbers In discussing the effect of human capital on economic growth, two approaches have been distinguished in the theoretical literature. The first strand of literature focuses on the stock of human capital as an explanation of cross-country growth differentials as suggested by Nelson and Phelps (1966). The second approach looks at human capital as an input factor in production function as in Lucas (1988) and points to the accumulation of human capital as the main factor driving growth differentials among countries. In recent years various attempts have been made by researchers to determine the effect of human capital on economic growth. Nelson and Phelps (1966) show that high level of human capital facilitates the adoption of new technologies. In contrast to this view, Lucas (1988) focuses on skill acquisition as an input in an aggregate production Romer (1990) assumes that both the stock as well as the growth of human capital generate ideas for new designs and goods which in turn drive endogenously physical capital investment and growth. Mankiw, Romer and Weil (1992) include physical capital and human capital investment rates (as ratio of GDP) as distinct arguments in an extended Solow mode. Most empirical analysis use education attainment as a proxy for human capital and investigate the relationship between the level of education or educational improvement and output growth at country level. However, it is believed in this research work that school enrolment rates or literacy rates misinterpret the role of labour force growth in the affirmative, thus this study will distinguish between stocks (initial level) and flows (subsequent growth) of human capital to capture with concise and precise brevity – the growth effects of human capital. This approach is believed, would provide better insight into the role of labour force growth in the economy, better than the school enrolment rates employed by earlier researchers. However, the growth in labour force, and growth rate of primary, secondary and tertiary education have been used separately in order to avoid the arbitrary weight in aggregation of human capital stock, and to identify the impact of different forms of human capital in the country. The main policy implications of this approach is that rather than concentrate on school enrolment rates as proxy for the supply of human, the stocks and flow of human capital would provide a better insight in making informed decision on the desired effects of human capital stocks and accumulation on economic growth in Nigeria. Nigeria’s overreaching objective since independence in 1960 has been to achieve stability, material prosperity, peace and social progress....
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