The aim of the study is to
critically investigate the impact of government education expenditure on
economic growth in Nigeria. The Real Gross Domestic Product (RGDP) was
used as the dependent variable as a proxy for economic growth, the
explanatory variables used in this study include; recurrent government
expenditure on education (RGEE), Capital Government Expenditure On
Education (CGEE), Gross Fixed Capital Formation (GFCF), Total Employment
(TEMP) and total employment (proxy by employee compensation).the study
employed annual time series data from 1981-2012, sourced from the CBN
Statistical Bulletin (2011 and 2013). Unit root tests were also
conducted using the Augmented Dickey- Fuller test to test for the
stationarity of the variables, an error correction mechanism was adopted
to test for the long run relationship between the variables and found
negative between RGDP and RGEE, CGEE, and GFCF while a positive
relationship maintained between RGDP and TEMP. However, drawing from
such findings, the study recommends among other things that there should
be a mechanism to monitor funds allocated to the education sector, in
order to conform to the theoretical and empirical evidences that support
the prime role of public education expenditure in rapid and persistent
1.1 BACKGROUND OF THE STUDY
An inquiry to the fiscal operations and
developments in Nigeria revealed that federal government expenditure on
education is categorized under social and community services sectors.
The implication of this according to Orubu, (1989) is that education is
an important good.
Education plays a vital role in human
capital formation. It raises the productivity of individuals and thus
produces skilled manpower that is capable of leading the country vis – a
– vis economy towards the path of sustainable economic development.
(Zaman, 2008). In the Nigeria context, the role played by education in
capacity building of the state cannot be over emphasized, however, as
noted by the CBN, (2002), the importance of education is reminiscent in
its role as a means of understanding, controlling, altering and
redesigning human environment. Education improves health, productivity
and access to paid employment.(Anyanwu et el, 1997). This implies
therefore that an educated population will avoid unhealthy practices and
habits, which will help lead healthy lives and become more productive
and finally leading to increased outputs in the economy. The assertion
is largely supported by Ola, (1998; 14) who once remarked that education
has a link with economic development; he puts that “if you see an
economy doing well, find out what is spent on education”.
Psacharopoulos (1973), Combs (1983)
andAboribo, (1999),have all revealed that increase in national income
and per capita income is a function of education and that difference
among various nations are better explained by differences in the
endowments of human rather than physical capital. This however explains
the rationale behind the allocations of between 25 – 35% of annual
budgets to their education sectors by the ‘Asian Tigers’ in the past
three decades (Aboribo, 1999; 61).
In the last year, the
educational sector suffered great vicissitudes as the government failed
to provide the needed policy consistent with ensuring a stable growth
progression. It was characterized by underfunding, infrastructural
decay, poor discipline and low level of learning achievement. This
issues and others led to the six month of industrial action by the
Academic Staff Union Of Universities (ASUU) which further damaged the
already epileptic educational system and mined its status in the eyes of
the world. (Ayo,2014). Apparently arguments have been derived as to the
effect of the six months strike on economic activities, however the
consequent social vices, and the slow rate of economic activities was
not in oblivion.
Education has been regarded
as one of the leading determinants of economic growth since the times of
prominent classical and neoclassical economists such as Adam Smith,
Romer, Solow, and Lucas. They however emphasized the contribution of
education in developing their theories and models. This was noted by
Ejiogu, Okezie and Chinedu, (2013).
Expenditure on education is
been regarded as an investment, hence the need to assess its returns to
scale is very pertinent according to Gisanabagbo (2006). Education is
valued for both its immediate benefits and future benefits, hence the
assessment of the impact on education expenditure on economic growth
should accommodate consideration on consumption investment benefits in
the economy. Studies have revealed that the choice between alternative
investments in physical infrastructure depends on society’s objectives
which are represented by government decision and on the analysis between
cost of investment versus the future benefits to be accrued from that
investment. (Gisanabagbo, 2006). The implication for this is that
educational expenditurevis – a – vis investment in education tend
todetermine future income distribution pattern, hence equity plays a key
role in government decisions of expenditure in education and the
private sector as well.
Human resources according to Anyanwu,
Oyefusi, Oaikhena and Dimowo (1997) contribute the ultimate basis for
the wealth of nations. This assertion is widely supported by economists
due to the overwhelming role played by human resources in economic
growth. However, globalization and increased economic integration has
de-emphasized the singular mechanical use of physical resources and
attention is directed to knowledge based economic activities, this
imply that education of availablehuman resources is necessary to be able
to adapt to new and advanced modes of production. There are good
reasons to expect however that human capital which is the product of
educated human resourcesshould be more productive at the aggregate
level. This however forms the basis for the proposition of Lawal,
Abiodun, Wahab and Iyoha, (2011) that skilled workers should possess
more ability to solve problems and should possess more communicative
abilities, hence should be more productive than their unskilled
counterparts. They however observed that in terms of sophisticated
technologies, skilled workers should be more productive than the
unskilled ones if the skilled ones does possess greater ability to
produce new knowledge and adapt to change, moreover, a more educated
labor force will also be able to achieve faster productivity growth,
both through gradual improvements in existing production processes and
through the adoption of better and advanced technologies which will help
them to be more flexible to the changing economic conditions and rising
worldwide competition (Lawal et al, 2011).
The argument on the effect of government
education expenditure on economic growth has raised controversies,
right from the days of the old. Prior to the world wars, the
relationship between government expenditure on education and economic
growth was largely insignificant as economist at the time were more
concerned with structural issues as movement of labour from traditional
to modern industries. Education can however be imported to this
assertion by examining its ability to develop the capacity of
self-sustaining growth and development which forms the core of the
1.2 STATEMENT OF THE PROBLEM
With a large population to
serve as an advantage in terms of human resources, coupled with the
enormous natural resources and relative high oil wealth Nigeria could be
seen as a country which possess the ability to build a prosperous
economy. This was evident when it was ranked as the number one economy
in Africa in 2014 with a G.D.P of USD 568.89 billion.
Despite all this economic
achievement, the country still dwells in the shackles of poverty, this
however represents a paradox. The attempt to shift from an oil economy
to one which dwells on other sectors had been unsuccessful due to
unskilled labor force. A good way of solving this problem in order to
achieve economic growth and economic diversification is the investment
in education. This notion was supported by Galbraith (1964) in this
observation that people are the common denominator of progress, and that
“no improvement is possible with unimproved people”. Iyoha and Itsede,
(2003) confirms this assertion by viewing the human factor and level of
education as the first and most important determinants of a country’s
level of economic development.
Over the years, Nigeria has
expressed a commitment to education in the belief that overcoming
illiteracy will lead to accelerated national development. However in
spite of the unimpeachable evidence that education is crucial to the
development of the community and the nation; there exists a wide gap in
access, quality and equity in education (Ayo, 2014).
Empirical evidence in recent
years have shown that the Nigerian educational system have
continuously produced graduates who overtime have failed to adapt to
changing production techniques; this is as a result of the adequate
infrastructure in the system, underfunding, poor learning achievement as
a result of outdated curriculum, low rate of research and development.
Thus the implication for this is that employment has been drastically
reduced the advent of capacity underutilization. This further lead to
low economic activities, low level of international competitiveness,
etc. Hence, it is seen however that government fiscal policy should be
directed to expenditure on education which forms the required human
Human capital is essentially
important in achieving a sustainable economic growth, however, the
greatest contribution is accomplished through investment in the quality
and quantity of education (Gisanabagbo, 2006). The study extends and
contributes to the body of research using current Nigeria data to
investigate the likely impact of investment in education on the
performance of a country in terms of growth and development in the
current era of globalization, economic growth and development will be
striated in the low income countries. Unless they commit budgetary
allocations adequately to higher levels of education and define economic
policies that enhance the effective use of skills within the society.
From the foregoing, the study tends to provide resource answers to the
following research questions.
1.3 RESEARCH QUESTIONS
i. To what extent does government capital expenditure on education affect economic growth in Nigeria?
ii. To what extent does government recurrent expenditure on education affect economic growth in Nigeria?
iii. Is there a relationship between school enrollment and economic growth in Nigeria?
iv. Is there a relationship between capital formation and economic growth in Nigeria?
1.4 OBJECTIVE OF THE STUDY
The objective outlined in this study
will tend to provide answers to research questions stated above. The
objectives are subdivided in specific and general objectives;
The specific objectives are:
i. To reveal the impact of government capital expenditure in education on economic growth.
ii. To examine the impact of government recurrent expenditure in education on economic growth.
iii. To access the impact of primary, secondary, and tertiary enrollment on economic growth in Nigeria.
iv. To analyze the effect of human capital formation on economic growth in Nigeria.
The general objectives of this study are:
- To examine the effectiveness or otherwise of government expenditure on education.
- To recommend appropriate investment methodologies for the government.
- To assess the role of government expenditure in education on employment creation in Nigeria.
1.5 RESEARCH HYPOTHESIS
- Ho: There exist no significant relationship between government capital expenditure on education and economic growth
H1: There exist a significant relationship between government capital expenditure on education and economic growth.
- Ho: There exist no significant relationship between government recurrent expenditure on education and economic growth.
H1: There exist a
significant relationship between government recurrent expenditure on
education and economic growth.
- Ho: There exist no positive relationship between primary, secondary and tertiary school enrollment and economic growth.
H1: There exist a positive relationship between school enrollment and economic growth.
- Ho: There exists no significant relationship between human capital formation and economic growth in Nigeria.
H1: There exist a significant relationship between human capital formation and economic growth in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
Nigeria is the most populous black
nation in the world, with abundant human resources and natural
endowments, however this evident large numbers of people are
characterized by mass illiteracy poverty, low standard of living, low
productivity, etc. The Obasanjo regime (1999-2003), the vision 20-2020
was adopted to off shoot the economy into the top 20 most developed
economies in the year 2020. It is a long term dream in which one of its
objectives is to create a knowledge based economy with the adequate
human resources development. Achieving this goal requires high level
human capital because to function well a modern economy requires highly
trained workers (Lawal et al, 2011). This study may be useful in policy
orientation by demonstrating that Nigeria economic by investing in
This study tends to provide
information that will be relevant to ministries, departments and
agencies of education, on the importance of both public and private
investment in the education sector in terms of providing quality
education for its citizenry.It is also relevant to the government and
its parastatals in terms of the improvement of allocation of resources
to the education sector; Emphasis here should be on the most efficient
ways to invest in the sector in order to achieve the intended goals and
objectives of such expenditure. This research will also be relevant to
researchers as a source of material for further research in the body of
1.7 SCOPE OF THE STUDY
This study tends to focus on
the educational system in Nigeria, and the Nigeria population. It
utilizes its data looking at primary: post-primary and tertiary
institutions in Nigeria. Its major sources of data were a variety such
as books, journals, theses, academic journals, newspapers caption,
internet, etc. Error correction model is the methodology adopted for
this study to analyze the long run relationship between the variables of