do reference EZECHUKWU UCHENNA OR CONTACT ME AT uchennaezechukwu@yahoo.com or call +2348037400466

1. TOPIC :
AN ECONOMETRIC ANALYSIS OF GOVERNMENT
EXPENDITURE ON HUMAN CAPITAL DEVELOPMENT
AND ECONOMIC GROWTH IN NIGERIA
AN M.Sc PROJECT PROPOSAL TO BE PRESENTED TO
THE DEPARTMENT OF ECONOMICS
BY
EZECHUKWU UCHENNA
PG/M.SC/2010/57503
SUPERVISOR Dr (Mrs) I S MADUEME

2. BACKGROUND TO THE STUDY:
 The belief that human capital is an engine of growth rests on the quality and
quantity of resources devoted to that sector in any country, as it stood out as generally
acclaimed impetus for the actualization of sustainable growth and development in an
economy.
 Most developed nations have long realized the importance of human capital as
strategic effort towards economic development.
 Hence it is important to assign greater emphasis on the role of human capital as a
major contributor to economic growth and development. Though what is still
debatable is what factor should be considered as human capital formation

3. Background Contd
 This Human capital is often conceptualized as an aggregate function including health
and education (Todaro and Smith, 2003). This health and education are two closely related
human capital components (Lawanson , 2009)
 Analyzing government expenditure on human capital development and its effects on
economic growth will be the key to understanding the rationale for the investment in the
sector.
 So national government needs to spend more on education and health but how much to
spend and the extent of its impact on the economy is yet to be ascertained. Thus this calls
for an empirical investigation.

4. STATEMENT OF PROBLEM:
 Good education and better health care should be the primary objective of any committed
government, as endogenous theories postulate that human capital spurs economic growth.
 The sectoral allocation to them during military regimes and democratic regimes have
been inconsistent, as this has generated problems of shortage in human capital development
in Nigeria (Durosaro, 2000).
 As a result of these, the indices of health and education have been low in Nigeria. This
made Soludo (2003) to opine that human capital development in Nigeria is still quite low by
international standard.
 Despite the effort of the government to boost its expenditure on human capital
development the outcomes are still questionable.

5. OBJECTIVES OF THE STUDY
 To estimate the extent to which government expenditure on health and education has
impacted on economic growth in Nigeria.
 To determine the causal link between government expenditure on education and
health and human capital development outcomes in Nigeria .
 To determine the difference between impact of government expenditure on health
and education on economic growth in democratic and military regimes in Nigeria.
RESEARCH HYPOTHESIS
H0 Government expenditure on human capital development has not
impacted significantly on economic growth.
Ho There is no causal link between government expenditure on human
capital development outcomes in Nigeria.
H0 There is no significant difference in the impact of government
expenditure on health and education on economic growth in democratic and
military regimes in Nigeria.

6. SIGNIFICANCE OF STUDY
 This work will produce an updated literature which will be used as an important material
for future researchers in this area and as well assist students through the provision of a
functional framework on which future research can be carried out.
 The result of this study will be informative as to whether the existing investment in
human 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 the
authority and responsibility over important input indicators of human capital development.

7. SCOP OF STUDY
 The scope will be limited to the education and health sector as important components
of human capital.
The variables of interest will be:
• Federal government capital and recurrent government expenditures on education and
health,
•Gross enrollment 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
•Democratic regimes will cover the period from 1979-1983, 1999 - 2011.

8. 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 inclusion
of human capital in the model as the model predicts that the economy can grow forever as
long 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 theory
indirectly provides the government with a theoretical justification in order to actively engage
in projects to promote growth process in the context of expenditures on human capital

9. THEORITCAL LITERATURE
Theoretical 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 HEALTH
SECTORS 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 produce
inconsistent and controversial results (Pritchett 1996). Reason being there are three
streams of studies on human capital development. The first and second streams of
studies usually focus on either (education or health) component of the human capital and
growth nexus, while the last stream focuses on both components.
Few of those works includes: Knowles and Owen (1997), Abbas (2001), Hamoudi
and 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 this
respect.

10. 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 relationship
that existed in the 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 use of different variables to capture human capital, differences in
locations, heterogeneities among countries and the inaccuracy of data contributed to
differences in results.
 Most of the empirical research conducted on the Nigerian economy has defined
human capital in terms of education indicators or health indicators. Therefore, there
is a need to conduct research on this aspect that uses much broader measure of human
capital in the context of Nigerian economy. The present study is an attempt to use
broader measure of human capital as it uses education index and health index as
proxies for human capital
This work will also ascertain the variation of expenditure on human capital
development between military and civilian regimes in Nigeria.

11. METHODOLOGY
ANALYTICAL FRAMEWORK
 The specification of the relationship between human capital and growth is well grounded
in 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 not
explicitly 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)
where
Y = 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 of
capital 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)

12. When equation (2) is further transform into a log-linear form, it becomes
Log Y = α0+α1logK+ βlog hL+ V-----------------------------------(3)
where
α0 = logA , V = log U
To make equation (3) more relevant to this work and more suitable to the Nigerian
situation, the model is modified to accommodate other variables. These variables include
government capital expenditure on education and health (CE) and recurrent expenditure
on education and health (RE). These two variables are incorporated to capture
government expenditure on human capital development, since this study is focused on
government investment in human capital development and its effect on economic
growth.
When these new variables is incorporated in equation (3) the expanded form becomes
LogY = α0 + αIlogK + αβloghH + α3logRE + α4logCE + V-------------(4)
Where
LogY = 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);

13. CE & CE =Human capital development proxied by government capital and recurrent
expenditure on education and health.
Based on the above formation, the model can be written as
RGDP = α0 + α1GFCF + α2TSE + α 3RE + α4CE + V------------------------------- (5)
The a priori expectations are
α0, α1, α2, α3, α4 > o and Equation (5) shall be estimated using (OLS).
Model two
Following the work of Craigwell, Lowe and Bynoe (2012), this study will adopt their
model with modifications. Hence we introduce new variables in the model in order to suit
our second objective. Which is specified in the following equations.
The health regressions are modeled as follows
HE = α0 + α1X1 + α2Z2 + α3Y3 + Ut ----------------------------(1a)
Where
HE = health, proxied by life expectancy; X1 = is a vector of investment comprising of
recurrent expenditure on health as a percentage of total government expenditure;
Z2 = is a vector of investment comprising of capital expenditure on health as a percentage
of total government expenditure; Y3 = is a vector of infant mortality rate; Ut = white
noise.

14. The education regressions are modeled as follows:
EEj = 0 + 1X1 + 2Z2 + 3Y3 + Ut---------------------------------(1b)
Where
EEj = Education, proxied by total school enrollment for primary, secondary and tertiary
gross school enrollment; X1 = is a vector of investment comprising of recurrent expenditure
on education as percentage of total government expenditure; Z2 = is a vector of investment
comprising of capital expenditure on education as a percentage of total government
expenditure; Y3 = is proxied by literacy rate; Ut = white noise.
Model Three
To capture the third objective we introduce a dummy variable to capture the variable
administration/ regime in the country during the period of study.
H = π0 + π1MIL + µ ………………………. (8)
Where
H = human capital development expenditure in Nigeria comprising of capital and recurrent
expenditure on education and health. MIL = military administration regime. µ = the random
term, the base group here is civilian administration, π1 = -is a dummy variable which assume
one (1) if human capital expenditure is during military regime and zero (0) otherwise.

15. MODEL ESTIMATION TECHNIQUES
 The following techniques shall be employed in the research work for various tests. In
order to strengthen our analysis and findings, OLS will be used. We also carry out a unit
root test, to test the order of stationarity of the data set and see if there is a long equilibrium
between the variables of interest. After conducting the unit root test, we shall be able to
identify the order of integration of the variables, if any of the explanatory variables have the
same 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 and
save the residua and ADF and augmented dickey fuller test shall then be conducted.
DATA SOURCES AND COLLECTION
The 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-excel
will be use for data computation.

16. THANKS FOR LISTENING
&
GOD BLESS YOU ALL
Ezechukwu (2013)