Human Capital Channels and Productivity Growth: Evidence from Nigeria

By Popoola, Olabisi; Alege, Philip Olasupo et al. | Economics & Sociology, October 1, 2019 | Go to article overview

Human Capital Channels and Productivity Growth: Evidence from Nigeria


Popoola, Olabisi, Alege, Philip Olasupo, Gershon, Obindah, Asaleye, Abiola John, Economics & Sociology


(ProQuest: ... denotes formulae omitted.)

Introduction

Human capital includes acquiring knowledge, ideas, skills and other "invisible" assets of individuals that can be used to create economic value. Investment in human capital is one of the vital factors that promote growth through productivity improvement. Signalling theory also stresses that investment in education is a signal to differentiate the most productive individuals during recruitment (Spencer, 1973). In recent times, education has been acknowledged as one of the major channels to increase productivity of human capital (Escosura, & Roses, 2010; Lee & Lee, 2016). Consequently, a strand of literature has recognized the importance of human capital for economic productivity (Trostel et al., 2002; Vandenbussche, Aghion & Meghir, 2006; Li & Wang, 2016 Dias & Tebaldi, 2012). At the same time, determining the channels of human capital on growth and development is of main interest to promote sustainability. Another strand of literature shares the view that the presence of human capital does not increase productivity growth in all cases due to external shocks from different production processes and service delivery (Li, Lai, Wang & Zhao, 2016). Given this circumstance, it is essential to improve human capacity to adjust to different economic situations. However, an emphasis has been placed on the advanced human capital, the role of which is played by technology and research and development due to their ability to spur innovations, increase aggregate output and reduces marginal costs over time (Romer, 1990; Nelson & Phelps, 1990). This means that productivity growth can be enhanced if the channels of human capital are improved via development and adoption of new strategies in productive and economic activities.

Likewise, the Sustainable Development Goals (SDGs) 4 stressed the reasons to develop human capital through inclusive and quality education by means of decent work conditions and growth in connection with SDG 8. These goals are particularly relevant for African countries, which have higher percentage of youth population being unemployed (IMF, World Economic Outlook, 2018). Nigeria has abundant human and natural resources but it still faces numerous developmental challenges such as high poverty rate, high unemployment rate and low income per capita (Popoola, Asaleye & Eluyela, 2018; Asaleye, Olurinola, Oloni & Ogunjobi, 2017; Asaleye, Popoola, Lawal, Ogundipe & Ezenwoke, 2018). One of the reasons attributed to low productivity growth, according to some scholars, is low rate of investment in human capital, another reason is the inability to know the right channel of human capital investment to embark on (Li, Lai, Wang & Zhao, 2016).

Two major channels through which human capital can promote productivity are documented in literature as: the 'basic channel' with the emphasis on human capital to augment production (Lucas, 1998; Li and Wang, 2016; Lerner, 2011; Scott-Clayton, 2013), and secondly, the 'advanced channel' with its emphasis on human capital to increase total factor productivity (Vandenbussche, Aghion & Meghir, 2006; Tingting & Wang, 2016; Schultz, 1961; Becker, 1962; Nelson & Phelps, 1966). Meanwhile, Aghion and Howwi, (1992) posit that human capital affects growth primarily through the advanced channel which was termed the total factor productivity channel. Through this channel, investment in human capital can spur research and development, which, in its turn, will increase the level of technology and innovation. Taking another perspective on the basic channel, human capital can be viewed as a regular production factor, and it is referred to as factor accumulation (Mulligan & Sala-i-Martin, 1992). Even though theoretical literature has consistently established that human capital has a positive influence on growth, however, the impact through these channels still remains to be understudied. …

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