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Human Capital Development and Productivity Relationship

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This study examines the relationship between human capital development and productivity. Productivity is the dependent variable while human capital development indicators and gross capital formation are the explanatory variables. Recurrent and capital expenditures on health and education are used as human development indicators. The scope of the study is from1977 to 2003.

The Ordinary Least Square method was used to determine this relationship. It has revealed a negative relationship between gross capital formation and productivity.

However, human capital development was found to affect productivity significantly. It is therefore advocated to adopt policies that will improve the expenditure on health and education.




The issue of human capital development is of great importance in any economy particularly developing economy such as Nigeria. The twentieth century has become the human capital century. People and skills matter, the wealth of a nation is embodied in its people, that is, the working class. Although advanced countries but the poor countries are becoming more aware of the importance of people the advantage countries but the poor countries are becoming more aware of the importance of people the advancement of the economy. This study is therefore of great significance to the world at large.

Labor is one of the four factors of production. The others are capital, land and entrepreneur. In the nineteenth century, people were of little importance to industrial giants such as Britain, Germany, France and the United States. However, in the early 1900 attention began to shift to education of people at secondary and higher levels and provision of welfare services such as health services.

The Nigerian economy has however failed to move at the pace of other countries in the world. Although effort have been made in the area of human development in the part, there has not been a substantial improvement in the human capital development in the past, there has not been a substantial improvement in the human capital indicators such as education and health.

Productivity can be perceived as the output per unit or the efficiency with which resources are utilized. Therefore productivity with respect to human capital development refers to the development of human capital which will lead to efficiency with which resources are utilized and this will increase output. The trend of productivity in Nigeria is one that fluctuates. Productivity in Nigeria compared to that of other countries is very low.

Sustained productivity depends on the economy's human capital. Human capital can be defined as the skills, knowledge, competencies, and attributes that reside in a worker. Human capital development involves the improvement of a nation's human capital through better healthcare, nutrition, accommodation, working environment, education and training. The economies of nations and the world at large is dynamic in nature, it follows that the human resources of these nations should be constantly improved on. That is, training of manpower should be a continuous process in order to meet up with the demands of the world market.

Here, the emphasis is placed on education and health. These can also be referred to as indicators of human capital development on productivity.

ducation in Nigeria has improved over the years with increased interest in the tertiary institution. However, a closer attention has to be paid to the needs of the educational sector because the quality and level of educational attainment on the productivity of a country. Certain measures have been put in place to improve the quality of education in Nigeria by the Federal government and other agencies. However, these efforts have not brought about the much desired change in the standard of the education in Nigeria. Failure in the educational sector has been accounted for due to some problems. They include; inadequate allocation by the government to education, lack of dedicated teachers, poor political environment, poor implementation of policies and several others. Private organizations have sprung up to resuscitate the educational sector. This is evident through the increase in private schools in the primary, secondary and even the tertiary level. Nigerians have lost confidence in the ability of the government to provide good education and this has resulted in high patronage of these private institutions by Nigerians who can afford it. This leaves the bulk of Nigerians that cannot afford private education at the mercy of the government funded schools. The government has failed to realize the gravity of what an underdeveloped human capital can do to an economy. The need for more attention to be centered on this aspect is very necessary.

The health sector is also faced with similar problems as that of education. Health is a very important factor in human capital development. The state of health of labor affects the level of performance thereby affecting the level of productivity. Government has tried in improving health services by reducing the number of population per doctor, providing more health facilities, hospitals and other required health personnel. However, there is still room for improvement in this aspect. The rural areas of the country have been neglected while the urban areas have been focused on, there is still need to reduce the population per doctor, provide preventive healthcare and take drastic measures to reduce the infant maternal mortality.

These discrepancies in education and health of the country have a very significant effect on productivity and hence economic growth.


The Nigerian economy has solved several problems facing it. There has been prolonged economic recession followed by the collapse of the world oil market from the early 1980 and fall in the foreign exchange earnings of the country. Other problems include overdependence on imports for consumption and capital goods, lack of adequate social and economic infrastructure and neglect of the agricultural sector.

Nigeria is rated to be one of the poorest countries in the world. Putting the country's economy back on track requires a lot of activities that will advance the economy such as rebuilding the economy and making goods and services available and affordable for every one. This is where the issue of productivity comes in since productivity refers to the level of output of a country.

The problem therefore deals with increase in productivity through human capital development so as to increase growth. This study raises questions on how the indicators of human capital development affect productivity.


This study covers all sectors of the economy and all countries in the world as the issue of human capital and productivity affects everyone. However, the study is based on the Nigerian economy and all considerations and analysis refers to the Nigerian economy.

This study covers the period from 1977 to 2004.


The major objective of the study is to determine the relationship between human capital development and productivity in the Nigerian economy through the use of two human capital development indicators; education and health.

The specific objectives include:

  • To ascertain the relationship between human capital development and productivity
  • To examine the impact of health on the productivity in the Nigerian economy.
  • To examine the impact of education on productivity in the Nigerian economy.
  • To determine the indicators of human capital development.


This study is relevant to every sector of the economy. This is because every sector of the economy has labor as its most important factor of production. It is therefore of great importance to the industrial, agricultural, mining sector and so on. It gives them more incentive to invest more in their human resources.

It is also of great importance to the government who have in their hands the authority and responsibility over important indicators of human capital development. This study will encourage government to increase expenditure on education, health and other areas of the economy that affect productivity.

It provides a basis for which investment in health and education will be measured against productivity.

This study is therefore of great importance to all sectors of the economy, the government and other stakeholders such as consumers, shareholders and so on.


The following questions arise in the course of this study and will subsequently be answered. They include the following;

  • What is the relationship between human capital development and productivity?
  • What is the effect of health on productivity?
  • What is the impact of education on productivity?
  • What are the other factors that lead to the development of human capital?


The following hypotheses hold for this study;

    • H0 : Education has the lowest impact on productivity

H1: Education has the greatest impact on productivity.

    • H0: Health has no significant impact on productivity.

H1: Health has a significant impact on productivity.

  • H0: There is no significant relationship between human capital development and productivity.

H1: There is a significant relationship between human capital development and productivity.


The issues to be raised in this research work are both empirical and theoretical.

The Ordinary least square method of analyzing data will be used and the results will be interpreted.


Data was obtained from the Central Bank Statistical Bulletin, 2004.


In order to achieve the stated objectives, the project work has been subdivided into five chapters.

  • Chapter one is the introduction which consists of the background, statement of the problem, objectives, justification, hypotheses, scope, research methodology, organization and limitation of the study.
  • Chapter two is devoted to past literature written on the subject matter.
  • Chapter three is the methodological framework and the model specification.
  • Chapter four is presentation, interpretation and empirical analysis of regression results.
  • Chapter five boarders on the summary, recommendation and conclusion of the study.




Human resources make up the standard or the basis for the wealth of a country. Human resources are the summation of efforts, skills, knowledge and experience available in a country. It is the managerial, scientific, engineering, technical, craftsmen and other skills which are employed in creating, designing, developing organizations, managing and operating productive and service enterprises and economic institutions (Yesufu, 1962).

They are a nation's most valuable resources. They constitute a nation's human capital.

Human capital refers to the skills, education, health, and training of individuals. It is capital because these skills or education are an integral part of us that is long-lasting, in the way a machine, plant, or factory lasts ( Gary Becker, 1992).

Before the nineteenth century, investment in human capital was not important in any country. Expenditures on schooling, health and other forms of investment were quite small. This began to change during that century with the application of science to the development of new goods and more efficient methods of production, first in Britain, and then gradually spreading to other countries.

During this century, education, skills, and other knowledge have become crucial determinants of a person's and a nation's productivity. One can even call the twentieth century the Age of Human Capital in the sense that the primary determinant of a country's standard of living is how well it succeeds in developing and utilizing the skills, knowledge, health, and habits of its population.

It has been estimated that human capital-education, on-the-job and other training, and health-comprises about 80 percent of the capital or wealth in the United States and other advanced countries. (Gary Becker 1992). Therefore a country without effective human capital development skills will be lagging behind in the issue of development.

The concept of human capital refers to the abilities and skills of human resources of a country, while human capital formation refers to the process of acquiring and increasing the number of persons who have the skills, education and experience that are critical for economic growth and development of a country (Okojie 1995:44). Human capital is so important that in the Khartoum Declaration of 1988, it was asserted that:

......."the human dimension is the sine qua non of economic recovery ....no SAP or economic recovery programme should be formulated or can be implemented without having at its heart detailed social and human priorities. There can be no real structural adjustment or economic recovery in the absence of the human imperative" (Adedeji 1990:390). In other words, there cannot be meaningful economic growth without adequate human resources.

Human resources development involves the improvement and the transformation of a nation's human resources by better medicare, nutrition, accommodation, environment, education and training (Yesufu, 1962)

Human capital development can be described as a deliberate effort by Government and people to provide the right number of workers, at the right areas of need and at the right time in an economy that is incentives that will increase the morale of the workers. For example, in Japan, training of human resources is seen as very important in development of the economy. They also provide incentives that boost the morale of the workers. The government is expected to provide policies or programmes that provide the labour needs and a requirement in all sectors of the economy. The existence of a large population does not translate to a productive resource. Human resources can only be productive due to effort made by the government and the private organisations in developing human resources. Human beings become productive resource or human capital only when they are able and in a position to contribute meaningfully to productive economic activities. They have to be trained to become agents of production and economic activities.

Without training they remain passive, potential and inactive as other factors of production. Human beings can be fashioned to lead useful and happy lives and contribute to societal development by the development of their characters and potential abilities through education, training, health services and so on conducted over a long period of years.

The enterprise of human capital development therefore is the impartibility of knowledge and skills to human beings through education and training for productive as well as consumptive ends (U.O Anyanwu). Education is only one form of investment in human beings. Others include expenditure on medical care, migration to more prosperous regions, information about job opportunities and career prospects and choice of jobs with higher training contents. Human capital development is a form of investment with expected economic as well as social returns not only to the individual investor and his family but also the society at large.

The economy, with time, begins to experience growth, while the beneficiary acquires the opportunity to contribute to and secure qualitative live by being able to make the right choices and command higher earnings profile.

Consequently human capital development has been seen as the ultimate concern of all types of development-economic, social, cultural, political, etc. Capacity building or human capital development responds to a wide-range of questions such as what people are able to be or do, the issues longevity, health and mind development, their inalienable fundamental human rights to freedom of choice, speech, association, political, economic, social and other needs and ability to escape from avoidable diseases, malnourishment and illiteracy (HDR Nigeria 1996).

Human Development Report (1996) maintains that sustainability of human capacity building is the essential component of the ethics of universalism of life, stressing that it is a matter of sharing development opportunities between all classes and groups of people between the rich and the poor, between the present and future generations. It is of the view that sustainability demands what it calls intra-generational and inter-generational equity (HRD Nigeria 1996).

Capacity building or HRD has other associated benefits and returns. (Umo 1995) has itemized other crucial contributions of human capital to development in general to include;

  • the generalized capacity to absorb economic shocks as well as cope with the complexities of modern development;
  • creating a corps of well informed citizenry with positive attitude to national development,
  • providing persons for technology base needed for industrialization;


The most widely accepted definition of productivity is that it is the ratio of inputs to output. This definition enjoys general acceptability because of two related considerations. One, the definition what productivity is thought of to be in the context of an enterprise, an industry or an economy as a whole. Two, regardless of the type of production, economic or political system, this definition of productivity remains the same as long as the basic concept is the relationship between the quantity and quality of goods and services produced and the quality of resources used to produce them.

Eatwell and Newman (1991) defined productivity as a ratio of some measure of output to some index of input use. Put differently, productivity is nothing more than the arithmetic ratio between the amount produced and the amount of any resources used to produce them. This conception of productivity goes to imply that it can indeed be perceived as the output per unit input or the efficiency with which resources are used.

Olaoye (1985) observed that productivity as a concept can assume two dimensions: namely total factor productivity (TFP) and partial productivity. The former relates to productivity that is defined as the relationship between outputs

Growth in productivity provides a significant basis for adequate supply of goods and services thereby improving the welfare of the people and enhancing social progress (Mike Obadan).

Demburg (1985) said "without productivity there would be no growth in per capita income and inflation control would be more difficult". A country with high productivity is often known for high capacity utilization (optimal use of resources), high standard of living, low rate of unemployment and social progress.

Productivity measures the relationship between quantitative and qualitative value of goods and services produced and the quantity of resources needed to produce them (that is, factor inputs such as labour, capital, technology) (Sumbeye, 1992; Okojie 1995; Roberts and Tybout 1997).

Mali (1978) defines it as the "measure of how resources are brought together in organisations and utilized for accomplishing a set of results. It is reaching the highest level of performance with the least use of resources". In this definition, the issue of efficiency is being referred to. Increased productivity will involve the use of less resources and an outcome of more output.

Roberts and Tybout (1997) and Tybout (1992), assuming a neoclassical production function at the sectoral or industry , define total factor output to be a concave of inputs and time (a proxy for technological innovation). To them, the elasticity of output with respect to time is the total factor productivity.

TFP = Total output / Weighted average of all inputs.................1

The factor inputs include labour, capital, raw material and purchase of spare parts and so on. In a particular sense, these factors are reduced to the weighted average of labour and capital (Okojie, 1995; Roberts and Tybout, 1997).

Partial productivity (PP) is defined as:

PP = Total output / partial input........................................2

According to T. M.Yesufu, labour productivity refers to the output result of workers organised within a given economic unit or enterprise. Yesufu outlined the three basic deficiencies associated with the use of labour productivity. They include the following;

  1. the term "labour" as generally conceived , is ambiguous and far from inclusive. It excludes some very important categories of human inputs, especially management, marketing, accounting and the white collar workers generally, who are not directly on the production line.
  2. even the acknowledged workforce generally used for labour productivity measurement(the blue coated production line- skilled and unskilled labour) as far from homogenous, which complicates the allocation of output between the constituent classes; for example , adult and child labour; male-female, artisan, technician, etc.
  3. the output of an enterprise itself usually varies in terms of type , material inputs, labour mixes, sizes of unit products, etc., that are not easily dis-aggregated.

Due to these shortcomings of the use of labour productivity some economists prefer to use total factor productivity as it is said to be superior and more acceptable for purposes of determining enterprise or macroeconomic performance. Partial productivity is particularly used for analytical purposes, to test the relative efficiency of, or returns to, various forms of inputs, and to check, for example, the effect on marginal productivity an increase or reduction of a particular type of input.

2.2.1 The Traditional Concept of Productivity

The traditional concept of productivity focuses on the efficiency in the production or delivery process. In this wise, the focus is merely on the ratio of output to inputs.

Thus, productivity is measured as the amount of output per unit of inputs. Since the emphasis was more generally on labour productivity, the measure was often the amount of output per worker working for one hour.

This traditional approach implies a simple Mathematical relationship so that productivity improvement means producing more with less or the same amount of inputs; or sustaining the same level of output with less input. This traditional view derives from the economic logic of cost minimisation.

One implication of this approach is that traditional productivity improvement schemes tend to focus on how to reduce inputs employed and improve the skills of the workers they retain. Workers lay-offs, while seeking to maintain the same levels of output with the reduced work force became popular at enterprise levels.

The present policy of the Federal Government to reduce the work force in the public service is as a result of this traditional logic.

2.2.2 New Emerging Concept of Productivity

Globalisation and the new forms of competition which it has brought about, however, today require us to focus on a much broader concept of productivity. Likewise, we need to appreciate more fully the changing dynamics of the factors involved in the process of productivity improvement.

As a recent analysis points out, increased competitiveness, the increased complexity of markets, the globalisation of manufacturing and the increased concern about social and ecological issues make productivity improvement more important at the same time that the need for a broader meaning of productivity is required.

Thus, the focus today is increasingly on total factor productivity and the process of its improvement involves improving the overall business environment. This involves the promotion of better labour-management relations, continuous improvement in products and processes, enhancement of the quality of work life and continuous development of the human resource.

In this new conception, the emphasis of the direction to productivity improvement is on increased added value creation, rather than the minimisation of labour inputs.

Emphasis has also been brought to bear on the distribution of the benefits of productivity improvement among all stakeholders (workers, employers, consumers).

Productivity is not seen any more just as the physical increase in output, but also as the improvement in the quality and value or acceptability of the product or service.

Thus, productivity is not just an efficiency concept any more, but equally an effectiveness concept. In an increasingly globalized world, productivity improvement does not just involve the efficient production of products or services, but of "products and services that are needed and demanded and bought by very discerning customers". Customer orientation is increasingly in the fore and quality is now an important index of performance. Productivity is becoming identical with quality.


A number of factors affect productivity. Major among these are the complementing factors of production as well as technology/innovation, institutional backup, worker motivation, the quality of labour, environment, etc( U.O. Anyanwu).

To discover the effect of each of the cooperating factors on productivity, we have to go into a theoretical world where we can hold other things constant while varying each of these factors one after the other. Here, we are still relying on the theory of diminishing marginal productivity which states that if increasing amounts of a variable factor, say labour, is applied to a fixed amount of other factors (e.g. land, capital, materials etc.), given the level of technology then beyond a certain number the extra or marginal product of the variable factor begins to fall down or diminish (Todaro 1985)

However, in a real world all the factors impact productivity simultaneously.

(a) Land, A Factor of Labour Productivity Growth

Land can affect productivity both quantitatively and qualitatively. If land is identified as the limiting factor of labour productivity more arable land can be brought under cultivation to relax the land constraint. In this regard a number of forest reserves have, for this purpose, to be deforested. The quality of land can be improved through the application of manure and fertilizer, which also increases the yield per hectare. Other methods of farming that make for more yields per hectare of land such as improved seed and grain varieties have been adopted by modern farmers. New land policies that alter tenure ship and ownership are devices for relaxing land constraints and improving productivity.

(b) Capital Accumulation and Labour Productivity.

If identified low labour productivity is attributable to lack of capital, capital can be raised through the mobilization of domestic and foreign investment. Acquisition of new factories, equipment, and machinery will lead to increases in productivity and output per capita of the nation. The Nigerian Governments are committed to the attraction of foreign investments to, among others; improve the capital base of the country. However, while the efforts are being made to cover the need for further capital, installed capital such as the Liquefied Natural Gas Project, Petrochemical plants, Refineries and Iron and Steel factories, among others need revitalization if our productivity is to increase.

Investment in social and economic infrastructure gives a significant effect to productivity such as roads, electricity, water, sanitation, communication for the facilitation of economic activities.

Road networks are needed to bring the additional product to areas of need, while electricity, water, communication, all play very dominant roles in bringing about the additional product and service arising from the new investment. Dams, irrigation facilities, bridges and road extensions to interior areas all raise product per hectares of cultivated land. Use of chemicals, fertilizers, pesticides, etc. is part of the capital needed enhanced productivity because by raising value of the farm land, productivity is also being improved.

(c)Technology/Innovation and Productivity

Most economists regard technology/innovation as the most important source of growth. Technology is being seen as a new and improved ways of achieving or performing traditional tasks.

Technology can be neutral, labour or capital intensive. Technology is said to be labour and capital neutral when higher output levels are achievable using the same quantity and combinations of factor inputs in a production process. Simple innovations such as re-distribution of labour can result in higher output levels, too. On the other hand, technology may be capital intensive or labour intensive if higher levels of output are possible, with more capital or more labour. Use of simple implements such as those of cottage and small scale industries are said to be labour intensive while those such as electronic computers, automated textile looms, mechanical ploughs, tractors display capital intensity (Todaro 1985).

In industrialized countries where unit cost of labour is very high and expensive technology choice favors one that is capital intensive or labour saving, while in developing countries such as Nigeria where there is abundance of labour and scarcity of capital, choice of technology gravitates towards those that are labour intensive, and capital saving.

There is the fourth aspect of technology called labour or capital augmentation technology. The quality or skill of labour can be augmented by the use of, for example, videotapes, televisions and other electronic communication devices while capital augmentation is said to occur when productivity can be enhanced by the use of existing capital goods for instance iron types etc can replace wooden hoes. Today hybrid products such as cassava, rice, etc that give higher yield per hectare are being developed through technological augmentation.

(d) Labour Force Growth and Labour Productivity.

Labour Force growth an important part of the population growth stimulates economic growth and productivity growth particularly when growth has not attained its optimum level. A large labour force, all things being equal, means a large population and the latter is potentially a large domestic market, and if well endowed, empowered and developed, a great international market, too. However, much depends obviously on the capacity of the economic system to productively employ the additional workers arising from the population/labour force growth. Again this will equally depend on the rate and kinds of capital accumulation and the availability of related factors such as managerial and administrative skills and competence the level of commitment of the political administration.


Human Capital Development enhances labour productivity and the productive capacity of the economy. Employers regard the qualification arising from capacity building, as a reliable indication of personal ability, achievement drive reasoning for instance that, a graduate must make a better salesman than a man who had never met the challenges of higher education - that higher education has not only improved his skills the degree identifies him as the better man in the society. The earnings of a man that is educated is higher than an uneducated man. A number of explanations for this include the fact that the better educated are generally more flexible and more motivated and adapt themselves more easily to changing circumstances, benefit more from work experience and training, act with greater initiative in problem solving situations, assume supervisory responsibility more quickly and are more productive than the less educated even when their education has taught them no skills. They are found to earn high income because they tend to have access to wider range of occupations and more inclined to migrate in search of jobs with higher pays. A number of studies have unmistakably identified earnings rise with additional education even when other factors likely to influence earnings such as family background, social class origins, native ability, etc, etc, had been isolated. Hence higher productivity growth is associated with developed societies. Leading further to the argument that the higher the educational attainment of the labour force, the higher the productivity. This realisation has led many countries of the world - developed and developing countries alike - to embark on capacity building


2.5.1 Efforts made in the education sector

Despite our political turmoil and other shortcomings, Nigeria has made outstanding and indeed commendable strides in capacity building. The growth of tertiary institutions displays very interesting features, apart from maintaining an upward growth pattern; it further shows the rates at which Nigeria was establishing these expensive institutions with little or no regard paid to quality.

In the establishment of tertiary institutions within the period under reference, no effort was make to seek the opinion of NMB, which is statutorily mandated to advise the governments on their high level manpower needs! From the displayed growth pattern, Nigeria within the period under consideration was having one University and one polytechnic every two years. And has tended to enroll and produce for every one polytechnic graduate virtually two university graduates leading to what is called inverted pyramid in the structure of our human resources development.

Ideally, Nigeria ought to produce for every one university graduate, three polytechnic graduates. This pattern of capacity building where we have for every polytechnic graduate two university graduates does not make for rapid development rather it impairs employment growth, accentuating skill - job mismatch that is already pandemic in the economy, among other harms.

Apart from the purely academic angle, Nigeria has made outstanding pace in the area of training and institutional support. We have noted above that Nigeria has about 40 Universities, about 6 degree awarding institutions, 45 polytechnics, and 60 Colleges of Education, Secondary schools have grown up to 6,596 and we boast of 5,274,385 primary schools. Nigeria enrols in all our educational institutions about 22,225,841.00 students with a corresponding student's outturn figure of 2,922,873.00 students yearly and releases into the labour market about three fifths of the outturn of graduates in all the educational institutions.

Purely training institutions with each specifically targeted to a particular need are equally growing in number. These include the Administrative Staff College (ASCON); the Centre for Management Development (CMD); Industrial Training Fund (ITF), National Centre for Economic Management and Administration (NCEMA); National Institute for Strategic Studies (NIPSS), etc, etc. For Administrative purposes each tier of our educational system is tied up to a governing and administrative Institution, - the National Universities Commission (NUC) in this respect caters for universities, National Board for Technical Education (NBTE) for Polytechnic and Technical Colleges, The efforts of Departmental schools of Ministries for example Fisheries, FOS training schools at Ibadan, Enugu, etc. the Civil Service training Centres in this respect and even the policy of allocating 10% of personnel budget for on the job training of staff are to be well noted.

The Federal Government reform agenda is anchored on the National Economic Empowerment Development Strategy (NEEDS) document, it was indicated that adult literacy rate of at least 65% by 2007 would be attained. The NEEDS recognizes the centrality of human capital development in achieving economic growth. It was described as a vital transformational tool. Therefore, the strategy aims at empowering the citizenry to acquire skills and knowledge that would prepare them for the world of work. In order to achieve this, the strategy was designed to address the following crucial issues:

  • Faithful implementation of the free, compulsory Universal basic education law to others
  • Improve educational infrastructure
  • Expand institutional capacity to produce quality manpower
  • Expand total school enrolment to increase the literacy level
  • Review of schools curricula from primary to tertiary to incorporate vocational and entrepreneurial skills
  • Re-tooling and repositioning of technical schools to be able to address the technical manpower needs of the economy
  • Establishment of more vocational centers to encourage Nigerians to embrace vocational education
  • Review of school curricula at all levels to incorporate the study of Information and Communication Technology (ICT)
  • In view of Nigeria's position in, and vision of, ECOWAS sub region, review school curricula to make the study of French Language compulsory from primary through secondary schools
  • Expand existing Special Education Programmes including the Virtual Library Project, the distance Learning Programme and the Nomadic Education Programme
  • Sustain existing vocational/on-the job training programmes of the Federal Government and encourage the States to do the same
  • The National Youth Service Corps will be reviewed with a view to using a good part of the service year to develop entrepreneurial and basic business skills in the corps members. The orientation period will be extended to include a one-month period for formal training. Following the training, corps members will be posted mainly to industrial (small scale enterprises) and agricultural concerns, so that the exposure will encourage them to consider the possibilities of post service self-employment.

Private sector efforts and initiatives in this consideration are worthy of note, too. Apart from building institutions such as Financial Institution Training Centre for Banking Institutions in Nigeria, (FIFT), the National Institute of Management (NIM), the private sector organisations have equally developed in-house training programmes. There is now a growing complaint of proliferation of management consulting and training outfits in the country.

There are other forms of capacity building, which are seldom considered. There is the capacity building sponsored by international development agencies, whether multilateral agencies like the UN system and individual donor countries. In large measures and almost without exception, the aid or assistance package includes capacity building, staff (HR) development, and equipment and management systems.

Training, whether as fellowships or study tours are usually organised in local and overseas institutions as well as local workshops, conferences and seminars. This has brought grassroots associations, NGOs or the civil society into partnership with Government. Notwithstanding the harsh criticisms against this approach, it must be recognised as an important means of capacity building.

It must be observed that the current concern for human capital development goes beyond national boundaries. In response to global challenges, human capital formation has taken on international character primarily to enhance the migration of personnel and to move with the global operations of enterprises.

One of the main attributes of globalization process is the ever-growing interdependence of people of the world. For the highly skilled, the global labour market is integrated - corporate executives, scientists, engineers, entertainers with high mobility and wages. But for the unskilled labour, the market is limited to national boundaries (HDR 1999). In this relationship however many people in Nigeria especially the less skilled are missing out on employment and other opportunities and are limited the local processes. A well-designed capacity building programme has the virtue of human mind development, fostering creative mind that faces up to the challenges of development, environment and peaceful coexistence in a pluralistic social set-up such as Nigeria. It needs a developed mind to appreciate and maintain a clean environment, to switch off a wasting tap water, dispose of orange and other peelings that degrade the environment to work to improve productivity to peacefully coexist with folks of differing backgrounds without coercion. Professor Aluko one of Nigeria's foremost economist speaking on the essence of mind development at the Young African Leaders Forum held at Ogun State, is of the view that; "Development is a function of the State of the mind of the people. A people who are not ready for development cannot develop (Guardian Wed. Dec. 18, 1993).

2.5.2 Efforts made in the health sector

The First National Health Policy was adopted in 1985. Its goals was to bring about a comprehensive health care system based on primary health care, which is extensive, protective, restorative, rehabilitative and especially affordable to all citizen of the country. It was also to serve as a strategy to achieve health for all by 2000.

Various strategies have been adopted to improve the health of the nation particularly those aimed at reducing infant and maternal mortality rate.

Health care delivery is often measured by the number of employed medical personnel and hospital facilities available. In Nigeria statistics show that between 1972 and 1977 the number of medical practitioners increased from 3,112 to 7,525; pharmacists from 1,005 to 2,540; nurses and midwives from 31,500 to 34,000; hospitals and clinics from under 5,000 to 7,000 and beds in health institutions from43,000 to 58,000 (Kirk- Greene and Rimmer, 1981).

The First National Development Plan (1962-1968), they sought to increase the ratio of doctor to patient. The population per doctor moved from 32,000:1 to 30,000:1. However the result of this plan was not favourable due to poor funding and inadequate manpower supply.

The Second Development Plan (1970-1974) allocated 107.6milllion to the development of health facilities, showing an increase of 220.0 per cent over the first plan. The population per doctor increased to 22,000:1.

The objective of the Third Development Plan (1975-1980) was to expand medical research and education thus providing the country integrated and efficient medical system. The plan therefore set a target reducing the population per doctor to 14,000:1.

By 1990 the population per doctor improved to 4,300 and in 1995 to 3,707. By 1998, it deteriorated to 4,997. In terms of health institutions there was a total of 6,250, 790 and 47 primary, secondary and tertiary institutions, respectively, in the country in 1995.

The provision of health care was not evenly spread out particularly to the rural areas. Also priority was not given to preventive health care through measures such as immunization, protection of pregnant women and young children.

Consequently, Nigeria ranks as one of the lowest in the world especially in such areas such as infant mortality, life expectancy, nutrition status and accessibility to health care services.


Productivity can be seen as merely the measure of the performance of an enterprise. The performance of an enterprise will eventually influence that of a nation. When output is compared to input, the result may be positive or negative. Even a negative factor of production at any given time could be an improvement on a past record, just as a positive ratio could be a decline.

A measure of productivity whether partial or total gives a static picture. While an enterprise is dynamic, it is not enough to know how it has performed at a given time butt over a period of time. This measure of efficiency of an enterprise is based on a moving average of the total factor productivity constitutes the most basic all inclusive and most important application of the concept of productivity (Yesufu 1986).

Professor Okojie shows the importance of the applied study of productivity, both generally and under specific scenarios. They include:

  1. Productivity growth is now acknowledged as the major source of economic growth and income, as studies show that GNP grows faster than input factors if productivity is improved or improving.
  2. As such, and arising from the effect of (1), productivity changes have major influences on many social and economic phenomena, including economic development, standard of living, balance of payments position, rate of inflation and even the quantity and quality of leisure.
  3. In the United States, for example, a rapid growth of productivity supported the country's rapid growth of per capita disposable income; of real spend able earnings of workers, and of average family incomes.
  4. In Singapore, the1984 National Productivity Survey showed that labour productivity improvement was the main factor in determining the standard of living as manifested in a 4-folld increase in total output over the previous 17years.
  5. By contrast to Singapore, the Philippines had a low level of productivity of 97.7 of the increase in total output during the period 1900-1960, which was due to the more extensive use of factors of production; in other words, growth was input intensive without corresponding rise in efficiency.
  6. An analysis of eight high performing Asian economies indicated that their rapid growth of per capita income was due to rising output per worker.
  7. From the findings in (5) and (6), the Philippine's case supports the view that if productivity or efficiency or efficiency is low, even abundant resources could be frittered away as a result of high cost and inefficient exploitation of such resources.

T.M.Yesufu however listed major applications of the concepts of productivity as follows:

  1. to measure the efficiency, viability and related issues of an enterprise in particular, and the economy in general;
  2. to measure and identify the relative contribution of the various types of inputs of production of an enterprise to its output, and thus facilitate the calculation of the return due on , or to, each factor- labour, capital, etc.;
  3. to compare the performance of an enterprises to that of its competitors, and its place in, and contribution generally to, the overall economy;
  4. to facilitate international comparisons between similar enterprises in different counties, and/or between the totality of the different economies;
  5. in the light of all the measurements and comparisons, to facilitate decisions on production planning, in respect of total output, workforce levels and manpower ratios, as well as other input and product mixes; and,
  6. as an audit device, to determine the overall prospects of the enterprise or economic unit involved.

One can conclude from above that the value of the concept of productivity lies in its usefulness for comparative purposes.




This research work aims at determining the extent to which human capital development affects productivity within the context of the Nigerian economy. Some indicators will be used to capture the human development variable and their individual impact on productivity will be measured. This chapter will address the issue of what method and technique to use in determining the impact of human capital development on productivity.


The conventional neoclassical growth theory as modeled by Robert Solow (1956), holds the view that economic growth is as a result of the accumulation of physical capital and the expansion of the labor force, in conjunction with an exogenous factor, technological progress, that makes physical capital and labor more productive. The exogenity factor that makes increases productivity has been questioned in the literature by Lucas 1998; Romer 1987 and so on. To them what increases productivity is not an exogenous factor, but an endogenous one, which is assumed to be related to the knowledge and behavior of the people responsible for the accumulation of physical capital. Thus, human capital becomes an endogenous part of productivity.

This development leads to the augmented Solow model which is often formulated in Cobb Douglas production function. This model borrows the studies of Mankiw, et al (1992) and Grammy and Asane(1996). By incorporating human capital into the production process, the production functions thus written as,


The ordinary least square will be used as a method for the estimation of the variables. It determines the relationship between dependent and independent variables. The ordinary least square is being used because the OLS estimators are expressed solely in terms of the observable quantities. They are also point estimators that are; given the sample; each estimator will provide a single point value.

It also provides means of checking the accuracy of the results that are gotten through the following:


This shows the percentage of the total variation of the dependent variable that can be explained by the independent variable. The coefficient of determination is a measure of the goodness of fit. It tells us how well the sample regression fits the data.


It is closely related toR2 but conceptually different. It is a measure of the degree of association between variables.


This was developed by R.A Fisher and jointly by Neyman and Pearson. A test of significance is a procedure by which sample results are used to verify the truth or falsity of a null hypothesis.


The adjusted coefficient of variation takes into consideration additional variables and a smaller degree of freedom. The term adjusted means adjusted for the degree of freedom associated with the sum of squares.


The f-test is a measure of the overall test of significance of the estimated regression, is also a test of significance of R2. The f value provides a test of the null hypothesis that the true slope coefficients are simultaneously zero.


This is a test for detecting autocorrelation developed by statisticians Durbin and Watson. An advantage of the d-w statistic is that it is based on the estimated residuals, which are routinely computed in regression analysis.


3.3.1 Model specification

The model tries to capture the variables that determine productivity particularly human capital development. However, in this study partial productivity will be used rather than total factor productivity, his is because of the difficulty encountered in measuring the value of total factor productivity. Partial productivity is the rate of output to a level of input. In this study, labour will be used as the input. This means that labour productivity will be used.

The following variables are going to be used in the model;

  • Gross Domestic Product to labour force (output per worker)
  • Ratio of Gross Capital Formation to labor force (capital per worker)
  • Ratio of recurrent education expenditure to labour force
  • Ratio of recurrent health expenditure to labour force
  • Ratio of capital education expenditure to labour force
  • Ratio of capital health expenditure to labour force


  1. PROD; this measures the amount of output produced in an economy. That is, productivity is measured as the total output produced. This variable is proxied by Gross Domestic Product at constant price.
  2. REDU; this is the recurrent expenditure on education. This is proxied by Federal government budget estimates.
  3. RHEA; this is the recurrent expenditure on health. This proxied by Federal government budget estimates.
  4. CEDU; this is the capital expenditure on education. This is also proxied by Federal Government budget estimates.
  5. CHEA; this is the capital expenditure on health. This is also proxied by Federal Government budget estimates.
  6. GCF; this is Gross Capital Formation. It is used to proxy physical capital formation


This chapter includes the presentation of result and econometric analysis of result. In the process of analyzing the result the T-.test, F-test, and the Durbin-Watson statistics are employed.



4.3.1 Testing of hypothesis


The F-test: this is used to test for the overall significance of the entire model. Testing at the 5% and 1% level of significance, in (1) we reject the null hypothesis and accept the alternative hypothesis. We conclude here that all the slope coefficients are simultaneously different from zero and as such the overall model has a very high explanatory power.

Using the same level of significance as above, the slope coefficients in the Cochrane Orcutt are simultaneously different from zero, which specifies the validity of the model, that there is a significant linear relationship between prod and the regressors.


Considering the Ols results, at the 5% and 10% level of significance at 22 degree of freedom, the signs of the coefficients of gcf pass the two tailed test at the levels of significance. This means that the variable is highly significant and statistically different from zero.

Redu and cedu failed the 1% level of significance. However, the variable passed the 5% and 10% level of significance at 22 degree of freedom and this states that the coefficient of the variable is significant and statistically different from zero

Rhea and chea all failed the two tailed test at 5% and 1% level of significance, which states that the coefficient is not statistically different from zero.

In the Cochrane Orcutt result, gcf failed the two-tailed test at 5%, 1%and 10% level of significance and this means that the variable is not significant.

However, all the other variables passed the two-tailed test at 5% and 10% levels meaning that they are significant and statistically different from zero.

R Squared

R- Squared in the OLS result was 0.53750. This means that the independent variables (redu, rhea, cedu, chea and gcf) together explain over 54% of systematic variation in prod during the period studied. The R2 after the serial correlation test is 0.96908. It shows that the independent variables together explain 97% of systematic variation in prod during the period studied. It is said to be a good fit and better than that of the OLS result since only about 3% was not accounted for in the model, which is attributed to the error term.

R- Bar squared

R-bar squared takes into consideration the residual that was not accounted for in r -squared. For the OLS result, the r-bar squared is .42738. This means that above 43% of the dependent variable is explained in the model. This is not a good fit.

In the Cochrane Orcutt result, the r-bar squared is 0.93130. The r-bar squared explained over 93% of variation in the dependent variable by the explanatory variables after considering the residual.

Durbin- Watson Statistics

The Durbin- Watson statistic in the OLS result is low, indicating the existence of positive first order serial correlation. This was corrected in the Cochrane Orcutt result. After the correction, the model showed no autocorrelation.


On a priori, the coefficients of the OLS results do not all conform to what theory states. The coefficients of gcf, redu, and cedu are all positive and conform to stated hypothesis meaning that a 100% increase in gcf, redu, and cedu will lead to an increase in prod by 0.15012, 0.19403, and 0.14216 respectively.

The coefficients of rhea and chea do not conform to hypothesis and are negative. This shows that a 100% decrease in redu and chea will lead to a decrease in prod by 0.0016905 and 0.055755 respectively.

Considering the Cochrane Orcutt result, all the coefficients conform to stated hypothesis except gcf. That is, all the coefficients redu, rhea, cedu, and chea are positive and a 100% increase in the variables will lead to an increase in prod by, 0.041204, 0.035251, 0.014397 and 0.018396 respectively. gcf is the only variable that does not conform to a priori. That is, gross capital formations per worker will reduce productivity by 0.020324.

There were two different results, the OLS and the Cochrane Orcutt. The OLS result did not produce the result that was intended to. That is, not all the variables conformed to theory. the R2 and the R-Bar square was a not good fit, 54% and 43% respectively. The F- statistic was 4.881 and was significant at 1% and 5% meaning that there is a significant relationship between the dependent and explanatory variables. Gross capital formation was found to be significant at 5% and 10% meaning that capital has a very high impact on productivity. Recurrent expenditure on education was also significant at 5% and 10% levels of significance meaning that it impacts productivity. However, recurrent and capital expenditure on health failed the two tailed test and therefore affect productivity minimally.

In the Cochrane Orcutt result, all the variables were positive except and therefore conformed to theory. The R2 and the R -bar square was a good fit, 97% and 93% respectively.

The F- statistic was 25.6462 and was significant at 1% level of significance. The gross capital formation was not significant at 1% and does not impact productivity significantly. All other variables passed the two tailed test and this means that they have a significant effect on productivity.

The Cochrane Orcutt result will be used in this study as it is more accurate and corrects auto correlation. This result denotes that gross capital formation is the least important factor of production. However, recurrent expenditure on education is also of great importance to the economy. The Nigerian economy has not had enough development in both human and physical capital. The result therefore points out the effect of human and capital investment and this explains the problems encountered in the Nigerian economy. The result has therefore exposed a major reason for poor productivity in the country. It is shown above that expenditure incurred by the government affects productivity to a very large extent. This is because there is not enough attention paid to this sector of the economy. For instance, in the aspect of physical capital the rate of development of technology in the economy is very slow. This type of situation also applies to the education sector; the amount allocated to education is not enough as there is still room for development of the education sector in Nigeria.




This study sought to determine the relationship between human capital development and productivity in the Nigerian economy. In chapter two, which is the literature review, several conceptual issues were addressed. The determinants of productivity and the significance were among a few that were touched. The writings of several economists were also used as references to show what people have said concerning the topic. It was determined from the literature used that human capital is seen as very essential in the development of a nation's wealth. The major determinants of human capital development that were used include education and health.

In determining the relationship between human capital development and productivity, an empirical analysis of data was used. The Ordinary Least Square method of analysis was used and it found out the significant relationship between human capital and productivity in Nigeria. The results show that human capital affects productivity significantly.


From the results analyzed in chapter four, it is clear that human capital development conform to expectation particularly the Cochrane Orcutt result which is been used in the study to correct autocorrelation found in the OLS result.

From the result, all indicators of human capital development which include recurrent expenditure on health and education and capital expenditure on health and education. They all conformed to expectations, that is, all of the coefficients were positive and were also significant at different levels.

However, one variable did not conform neither was it significant. This variable is gross capital formation. It represents capital used in production. The coefficient of this variable was and it was also not significant. This implies that capital formation has little or no impact on the productivity of the Nigerian economy. This can be attributed to several reasons such as slow improvement in technology of the country, lack of adequate funding in the area of capital formation and so on.


This study is of great importance to every body in the country. Human capital affects productivity of a nation and in the same vein affects economic growth and standard of living. In order to improve the productivity to the country I recommend the following;

  • Increase in the amount allocated to education and health and other social factors that affect human capital
  • Government should provide facilities that will help in training teachers as they affect he standard of education that is being produced
  • Government should also provide adequate incentives for teachers such as increase in salaries, welfare services, and allowances and so on.
  • An awareness programme should be organized y the government in enlightening employers of labour on the importance of human capital not only to the nation but also to firms, which inevitably affects the country's economy. The government should not be the only agent responsible for the development of human capital. Apart from labour employers, parents should also be informed on he importance of education, health and nutrition to the economy.
  • More attention should be placed on the health care system. There are not adequate funds in this aspect and this should be corrected. In addition, medical personnel need to undergo better training before being allowed to practice.
  • Provision of incentives that will improve the capital base of the economy.


5.4.1 Limitation of the study

In the course of this study, the only problem encountered was accessing data to measure total factor productivity. This proved to be difficult and partial productivity was used in place of this. In addition, the reliability of the data gotten is also questioned.

5.4.2 Suggestion for further study

This study has proved to b a very interesting one which touches the heart of every citizen. This is why the issue of human capital development can never be over emphasized. There has also not been enough investigation into th

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