Project Materials

EMPIRICAL INVESTIGATION OF THE IMPACT OF GOVERNMENT EDUCATION SPENDING ON ECONOMIC GROWTH (1981-2012)

Chapter one

INTRODUCTION

1.1 Background of the Study

An investigation into Nigeria’s budgetary operations and trends revealed that federal government education spending falls under the social and community services sector. According to Orubu (1989), this implies that education is a valuable asset.

Education is essential for developing human capital. It increases individual productivity, producing skilled labour capable of leading the country and its economy down the road of long-term economic growth. (Zaman. 2008).

In Nigeria, the value of education in state capacity building cannot be overstated; nevertheless, as observed by the CBN (2002), the importance of education is indicative of its position as a tool of comprehending, managing, altering, and redesigning the human environment.

Education promotes good health, productivity, and access to paid jobs. (Anyanwu and El, 1997). This indicates that an educated people will avoid unhealthy practices and habits, allowing them to live healthier lives and be more productive, resulting in improved economic outputs.

The argument is largely confirmed by Ola (1998; 14), who once stated that education has a link with economic development; he argues that “if you see an economy doing well, find out what is spent on education”.

Psacharopoulos (1973), Combs (1983), and Aboribo (1999) have all demonstrated that an increase in national income and per capita income is a function of education, and that variations across nations are better explained by differences in human assets rather than physical capital.

This, however, explains why the ‘Asian Tigers’ have allocated between 25 and 35% of their annual budgets to education sectors during the last three decades (Aboribo, 1999; 61).

The educational sector has experienced significant volatility in the recent year as a result of the government’s failure to establish the necessary policies to ensure stable growth progression.

It was distinguished by underfunding, infrastructure degradation, poor discipline, and low levels of academic accomplishment.

This, among other difficulties, sparked a six-month strike by the Academic Staff Union of Universities (ASUU), further damaging the already ailing educational system and undermining its global standing. (Ayo,2014).

Apparently, arguments have been developed regarding the influence of the six-month strike on economic activities; nonetheless, the resulting social vices and slow rate of economic activity were not ignored.

Education has been viewed as a key determinant of economic growth from the days of notable classical and neoclassical economists such as Adam Smith, Romer, Solow, and Lucas.

They did, however, emphasise the importance of education in building their theories and models. This was observed by Ejiogu, Okezie, and Chinedu (2013).

Education expenditure is viewed as an investment, hence Gisanabagbo (2006) believes that assessing its returns to scale is critical. Education is valued for both its immediate and long-term advantages, so assessing the impact of education spending on economic growth should take into account consumption and investment gains in the economy.

According to studies, the choice between various investments in physical infrastructure is based on society’s objectives, which are reflected by government decisions

as well as an appraisal of the cost of investment vs the future benefits to be derived from that investment. (Gizanabagbo, 2006). The consequence is that educational expenditure relative to investment in education tends to predict future income distribution patterns, hence equality is important in government and private sector education spending decisions.

Human resources, according to Anyanwu, Oyefusi, Oaikhena, and Dimowo (1997), serve as the ultimate foundation for national prosperity. Economists generally agree with this assumption because human resources play such a significant role in economic progress.

However, globalisation and increased economic integration have deemphasized the singular mechanical use of physical resources in favour of knowledge-based economic activities, implying that education of available human resources is required to adapt to new and advanced modes of production.

There are compelling grounds to believe that human capital, which is the outcome of educated human resources, will be more productive on an aggregate level.