IMPACT OF HIGHER EDUCATION ON ECONOMIC GROWTH IN NIGERIA

ABSTRACT

This study aims at investigating the relationship between higher education enrollment and economic growth in Nigeria by using GDP as a proxy for economic growth and higher education enrollment as a proxy for Human capital, for both time series and panel analysis. The Co-integration and Ordinary Least Square method are applicable for time series estimation and a Panel Fully Modified Least Square (FMOLS) estimation for panel analysis. The findings show a negative and insignificant long-term relationship between higher education and GDP with a co- efficient of 0.085, which means that a 1% increase in higher education enrollment decreases GDP by 8.5%. The study also finds that Gross Fixed Capital formation and Population have a significant long-term relationship with the GDP, by having coefficients of 0.41 and 0.90 respectively. Key words: Brain Drain, Economic Growth, Higher education enrollment, Human Capital.

CHAPTER ONE

INTRODUCTION

1.1 Background of study

New growth theory claims that education and human capital are crucial variables to promote economic growth. Lucas (1988), cites that human capital is the fundamental aspect of production, and education is an essential factor of human capital formation. Development in education of labor has a significant role in the country’s economic development, and hence makes it more globally competitive. Countries with good quality education and high enrollment rates like Japan and Germany are achieving rapid development compared to those with low education rate (Greiner, 2002). Spalleti (2014) acknowledges Adam Smith’s wealth of nations 1776 paper as an excellent study of human capital and economic growth, which accentuated a “division of labor” and a “law of capital accumulation.” He contends that the basis of economic growth is a result of the division of labor, free trade, physical capital, and technological evolvement. However, technological development is possible only with the training of labor through higher education, which is also essential in labor specialization. The study links education and economic growth development process. Over the years, various theoretical and empirical studies have been conducted on the relationship between education, human capital, and economic growth. Though most of the literature shows a positive impact of education and human capital on economic growth, some studies show that education investment has no significant impact on the economic growth except for a diminishing return. After all, Education must be complemented by other aspects like family support (Hanushek & Kim, 1995).

The importance of human capital has been empirically examined by a number of studies. Most studies use higher education enrollment rates as a measure of human capital and GDP for economic growth. Nevertheless, the empirical result between higher education and economic growth are mixed, most studies find that higher education positively affects economic growth while some studies find that the relationship between higher education and economic growth is weak and insignificant. Some Scholars also argue that there is no causal relationship between education and economic growth. This study aims at inspecting the relationship between higher education enrollment and economic growth.

Nigeria is investing in education through different aspects like the establishment of a universal Primary and Secondary Education. Vocational institutes and Universities are culminating to reduce the literacy rate and consequently, the amount of skilled laborers.

To increase higher education enrollment, Nigeria gives out grants and scholarships to exceptional students who are excellent in academics, sports, music, dance, and drama.

In Nigeria, no study has yet shown a link between higher education enrollment and economic growth. There are multiple variables that contribute to human capital development, and the data that can be used to measure this against economic growth.

Nigeria’s Education System

Nigeria’s education system has a structure of seven years of Primary Education, six years of Secondary Education, and three to five years of a University or Higher

Education which in total, is about 13-18 years of Education, or possibly more. Most Nigerians go through Primary and Secondary Education. However, few continue their Tertiary studies due to poverty and early marriages. The Higher Education sector faces several challenges ranging from human and physical capital constraints such as there being few qualified Professors to the low pay and lack of facilitation processes available to said Professors. Thus, these conditions coupled with a lower pay, pushes the professional Professors to instead migrate to developed countries (Kajubi 1992). Higher Education also suffers from low Government funding, to which most of this is instead invested in other sectors like the Military. In 2014, 2.21% of the total GDP was allocated to the Education sector. These challenges call for a serious concern on the Education outcomes because they lead to the production of ‘half-baked’ graduates.

Challenges Facing Higher Education in Nigeria.

Nigeria, like all other African countries, has been facing several constraints in the Higher Education sector. The challenges are mainly classified into physical and human capital constraints, inadequate research, and poor-quality Education. Africa has not fully managed to provide suitable quality Primary and Secondary Education nor the required skills at the tertiary level for the Global job market, Goliber (1985). The quality of Education is a contributing factor to there being an insignificant relationship between Higher education enrollment and economic growth.

Secondly, due to an increase in the population, there has also been a gradual rise in the enrollment rate into Universities, which has led to traffic congestions. The Student- Teacher ratio is high, which makes it difficult for the Professors to manage the larger classes (Drape, Rudd, Lopez, & Radford, 2016). In 2000, the Student-Teacher ratio was 16.58 which increased to 31.45 by 2009 (World Bank, 2019). Another challenge is the issue of there being few qualified Professors, which is due to the low salary and poor working conditions. Other challenges that the Universities face are external funding, lack of resources, and lack of research within private Universities (Jegede, 2012). Due to funds, most research is left mid-way because it is too expensive and spans a long period of time. The poor working conditions and low wages for those employed at such Universities has caused there to be an un-sustainable high turnover rate among faculty members. The research in process is lost in the transition (Drape et. al., 2016).

1.4 : Research Problem

There is a prerequisite to examine the contribution of the higher education sector of Nigeria, in order to suggest appropriate interventions to improve outcomes from the sector.

The research is vital for the improvement of human capital to access the millennium goal of sustainable economic growth.

Nigeria’s GDP in 2016 was 225.89 Billion USD, with 2.64 % of the resources allocated to Education and Sports as the proportion to the national budget as Education investment. The Government has increased the rate of students enrolled with Government sponsorship to boost Education levels, but still, the total rate of School enrollment increase was very minimal in comparison with the investment. Nigeria’s budget theme for 2016 was “strengthening Nigeria’s competitiveness for sustainable wealth creation, employment and inclusive growth’’(Nigeria Debt Network, 2016). And this has not been much different in the past few decades because human capital is still a big challenge in the country where a lot of funds are spent on the importation of experts to work in different sectors like mining and road construction. Through enlightening the quality of Education, the attainment of human capital is achievable hence economic growth. The Ministry of Education and Sports has a strategic plan of retraining unemployed graduates to equip them with the skills required for the existing job market.

Whereas Education investments have been increasing significantly over the past decades, economic growth has not measured up. Some commentators have attributed the sluggish growth to inadequate skills, work attitude and ethics, and an absence of innovativeness. On the other hand, the increased investment was ideally or theoretically intended to translate into improved productivity, resulting in a higher output. In contrast, investments in Education are playing their part in the growth agenda, although, there could also be other factors influencing the sluggish growth. This calls for a thorough investigation into the effect of Education investments and enrollments on economic growth.

1.5 : Research Questions

The following questions will be answered to achieve the aim of the research:

1. Does higher education enrollment contribute to an increase in Nigeria’s economy?

2. What is the magnitude of the contribution?

1.6 : Research Objectives and Hypothesis

This paper aims to expand on the existing studies of the relationship between human capital development and economic growth by analyzing Higher Education enrollment as a factor. The study will be conducted in Nigeria to analyze the link between Nigeria’s Education on human capital development and growth.

This paper proposes the hypothesis that Higher Education enrollment positively affects economic growth in the long run.

1.7 Limitations

Most of the African countries have so many gaps in the data (World Bank, 2019), mainly in the earlier years, due to political instabilities and fewer funds allocated to research. This research focuses on Higher Education enrollment. However, most of the countries have no data for some periods because of the political instabilities and less investment in research which may also affect results and estimation.

The study of the effect of Education on growth is prey to the endogeneity in Education investment. There is a difference in population growth in different areas within the same country. Some parents might invest more in education than what the state captures. So, we have to assume that education investment is taking place only at the national level. There is no data on individual investment in education, so this research relies heavily on proxies like School enrollment.

Furthermore, an additional academic qualification may not increase the individual’s productivity. Education would have been measurable on innovations, and increased research of a country, but such data is not available in the country. The available data does not consider the informal training as a great attribute to human capital like cultural background, family support, and ties.

It is also cumbersome to eliminate the effects of migration and globalization. The existence of technology transfer, which impacts growth and failure to isolate these effects, poses a threat to estimates. Therefore, due to the assumptions and limitations, the expected paper will use GDP, higher education enrollment, population, and gross fixed capital formation to assess the magnitude of Education on Economic growth.

1.8 Outline of the Study

This thesis is divided into six parts. The first part, Chapter 1, is the introductory chapter, which discusses the background of the study, the research hypothesis and objectives, and the significance of the study. Chapter 2 reviews related literature on higher education and economic growth and is further subdivided into three parts. The first is theoretical, the second is empirical studies which show a positive relationship between higher education and economic growth. Thirdly, a focus on the studies which reveal a negative relationship between higher education and economic growth. Chapter 3 highlights the research methodology that this paper follows and describes the research design, research site, data sources, and instruments used to accomplish this study. Chapter 4 reports on the data analysis, estimation, and findings of the study reports discussions and the summary of the study. Chapter 5 concludes and summarizes the study as well as providing policy recommendations and future research routes on higher education and economic growth.

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