INVESTIGATION OF THE IMPACT OF GOVERNMENT EDUCATION SPENDING ON ECONOMIC GROWTH
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1 INTRODUCTION
This chapter reviews the literature on the investigation of the impact of Government education spending on economic Growth. It discusses issues arising from the topic of interest as viewed from different perspectives, with a view of giving a theoretical and empirical foundation to the study.
2.2 LITERATURE REVIEW
Omotor (2004) in his study analyzed the determinants of federal government expenditures in the education sector in Nigeria using the ordinary least squares (OLS) methods. His work shows that the trend in education expenditure in Nigeria is unstable which reflects the instability in government earning. Government revenue was the only significant determinant of education expenditures as revealed by the results of the regression. The study recommends a diversification of the sources of funding education so as to reverse the unstable trend in that sector. The duo of Babatunde and Adefabi (2005) examined the long-run relationship between Education and economic growth in Nigeria using the Johansen co-integration approach as a framework of analysis. The co-integrating technique investigation suggest that there is long-run relationship between enrolments in primary and tertiary levels of education and the average years of schooling with output per worker. The study concluded that a well educated labour force possessed a positive and significant impact on economic growth through factor accumulation and on the evolution of total factor productivity. Adebiyi and Oladele (2005) empirically investigated the relationship between public education expenditure and defence spending in Nigeria. The study employed the error correction mechanism and the vector auto-regressive (VAR) models and found a negative tradeoff between defence spending and public education expenditure. Analysis of the impulse response functions derived from the VAR model reveals that past public education expenditure shocks has a positive but declining relationship with current public education expenditure in the first two years after which it turns negative. Also, the impulse responses show that increase in defense spending will increase public expenditure available for education in the short-run. The study did not examine the causal link between the various levels of education and economic growth. Dauda (2009) carried out an empirical investigation on the relationship between investment in education and economic growth in Nigeria, using annual time series data from 1977 to 2007. The paper employs Johansen co-integration technique and error correction metho-dology. Empirical results indicate that there is indeed, a long-run relationship between investment in education and economic growth. All the variables used including gross fixed capital formation and educational capital are statistically significant (except labour force) in the Nigerian economy. The findings have a strong implication on educational policy in Nigeria. The study seems to suggest that a concerted effort should be made by policy makers to encourage increase in educational investment in order to accelerate growth which would engender economic development. Omojomite (2010) examines the notion that formal education accelerates economic growth using Nigerian data for the period of 1980-2005. Time series econometrics (co-integration and Granger Causality Test are applied to test the hypothesis of a growth strategy led by improvements in the education sector. The results show that there is co-integration between public expenditures on education, primary school enrolment and economic growth. The tests revealed that public expenditures on education Granger cause economic growth but the reverse is not the case. The tests also revealed that there is bi-directional causality between public recurrent expenditures on education and economic growth. No causal relationship was established between capital expenditure on education and growth, and primary school enrolment and economic growth. The paper recommends improved funding for the education sector and a review of the primary school curricula to make it more relevant to the needs of the Nigerian society. Nurudeen and Usman (2010) carried out a dis-aggregated analysis on government expenditure and economic growth in Nigeria. Their analysis concluded that there was no significant relationship between expenditure on education and economic growth in Nigeria. However, they suggested that government should increase expenditure in the educational sector since it would increase productivity and economic growth. Lawal and Wahab (2011) considers the relation that is established between education and economic growth in Nigeria. Education is seen here as representing one of the primary components of human capital formation, which is an important factor in modeling the endogenous growth. Human capital is essentially important in achieving a sustainable economic growth; however, the greatest contribution is accomplished through investment in the quality and quantity of education. Time series data were collected between 1980 and 2008, and OLS technique was used to estimate the model. It was discovered that education investments have direct and significant impact on economic growth in Nigeria. It was therefore recommended that government at all levels should increase their funding on different segments of education in the country. Odeleye (2012) examines the impact of education on economic growth using primary and secondary annual data ranging from 1985 to 2007.
According to Barro and Grilli (1994), Government spending (or government expenditure) includes all
government consumption and investment but excludes transfer payments made by a state. Government
expenditure can be for the acquisition of goods and services for current use to directly satisfy individual or
collective needs of the members of the community or it can be for acquisition of goods and services intended to
create future benefits such as infrastructure investment and the expenditures can represent transfers of money,
such as social salaries and cost of administration.
In Ijaiya 2003, government expenditure is determined by rapid population growth and subsequent demographic
transitions, increase in income and taste of the people in a country that had led to increase in demand for
government goods and services, increase in technological requirements for industrialization, increase in
urbanization, increase in inflation over time, balance in productivity growth between public and private sector,
and the need to address natural disasters among other things.
Similarly, government expenditure is influenced by the expanded roles of government which include among
others, the provision of pure public goods for, example, defense, law and order, properly rights, macroeconomic
management, public health and education, protecting the poor through the provision of anti-poverty programmes
and disaster, relief programmes, addressing externalities, for example, environmental protection, provision of
social insurance, coordinating private sector activities and redistribution of income and assets (2006).
On economic growth Olopade and Olopade (2010) defines economic growth as the expansion of a country’s potential GDP or output. For instance, if the social rate of return on investment exceeds the private return, then tax policies that encourage can raise the growth rate and levels of utility. Growth models that incorporate public services, the optimal tax policy lingers on the characteristic of services. Economic growth has provided insight into why state growth at different rates over time; and this influence government in her choice of tax rates and expenditure levels that will influence the growth rates. For instance, exponential growth model is used when the rate of increase is proportional to the amount of quality present e.g. tax = y (t) = yoekt where (t) is the amount present at any time t, yo is the amount present at initial time = o; and the K is constant (k>o) is the growth rate. The findings show that only recurrent expenditure has significant effects on economic growth as the academic qualifications of teachers also have significant impact on students’ academic performance. Among other, this paper recommends that the government should increase its expenditure on education especially, the capital expenditure, while a good salary scheme with other incentives for teachers’ motivation should be implemented.
Education in Nigeria
According to Omojomite (2010), the education sector in Nigeria has passed through two phases of development: the phase of rapid expansion in the growth of the sector (1950 – 1980); and the second phase of rapid decline in the sector in terms of growth (1981 – 2009). A look at the trend of events indicates that the situation still remains the same with the latter period to date. During the first phase when representative governance took its roots in Nigeria, the three regional governments had control of the educational development in their respective regions. This first period marked the beginning of rapid expansion in terms of access. For example the number of pupils in primary schools was 626,000 in 1954, the figure rose to 2,912,619 in 1960. Similarly the number of post primary school rose from 161 in 1955 to 912 in 1960. The student population in post primary schools rose from 9,908 in 1947 to 140,401 in 1960 (Aigbokhan et. al., 2005). The surge in access to schools was due largely to the policies and programmes of governments that built primary and post primary schools and also provided grant – in – aid to missionary schools. We must note here that the missionary churches dominated the provision of schools before the government took over of primary and post primary schools in the early 1970s (Omojomite 2010). Educational curriculum at this first period was not local oriented. It was based on colonial ideology by the British. It must be noted also that at this initial phase of educational development no effort was made to select school curricula that would meet the long-run developmental needs of the Nigeria society. Rather emphasis was placed on numeracy and general intellectual capacity while technical and practical skills were neglected. The university college Ibadan which was the only university in Nigeria before 1960 had no facilities of engineering, law and technology (Omojomite 2010). During this period, access to tertiary education was easy with the establishment of the University of Nigeria, Nsukka (1960), University of Lagos (1962), University of Ife, Ile–Ife (1961), Ahmadu Bello University, Zaria (1962), and University of Benin, Benin City (1970). These universities were established and funded by the post independence regional governments. In 1975, the military government took over the regional universities and also extended grants–in–aid to state owned polytechnics. More universities and colleges of technology (poly-technics) were established between 1975 and 1980. In establishing the new educational institutions, sound investment criteria were not followed; instead the need to have regional balance, ethnicity, nepotism and opportunity for personal gains were the determining. factor (Awopegba and Adedeji, 2000). Also, during this period, precisely 1976, the government introduced the universal primary education (UPE) programme. This policy made primary education free to all Nigerian children. In 1976, a new structure was introduced into the education system in Nigeria to replace the old structure of 6 years primary; 5 to 7 years post primary (that is, secondary, teacher training colleges and sixth form or higher school) and 4 – 7 years of tertiary education (University, Polytechnics and colleges of education). The second phase of the educational development in Nigeria was a period characterized by a decline in educational inputs leading to deterioration of educational fixed assets, inadequate funding and declining standards. Aigbokhan et al. (2005) noted that the period 1978 – 1999 was a crisis period in the education sector in Nigeria and the root cause of the crises was inadequate funding (Omojomite 2010). Omojomite (2010) advanced for the low and unstable trend in the allocation of resources to the education sector:
• The dwindled oil revenues due to a fall in oil prices in the early 1980s lowered federal government budgetary allocations and education sector was badly hit.
• The IMF/World Bank inspired structural Adjustment Programme (SAP) that was adopted as a development policy beginning from 1986 engendered cuts in fiscal spending including education expenditure.
• The debt overhang of the 1980s and 1990s constrained the amount of resources available for the other sectors of the economy including the education sector.
• It has also been suggested that the long military rule in Nigeria favoured the defence sector to the neglect of the education sector in terms of resource allocation.
• Widespread corruption in the management of educational institutions by political and school administrators has contributed to the underfunding of the education sector in the past three decades.
Omojomite (2010) states that what is new in the new system is that post primary education is now made of two tiers, that is, three years of Junior secondary and 3 years of Senior secondary education for ages 11-13; 3 years of senior secondary school for ages 14 – 16 years and 4-7 years of tertiary education for ages 17 years and above. In spite of these changes in curriculum which is facing dwindling funding, education in Nigeria is yet to improve to bring about the highly desired socio-economic change.
Budgetary Allocation to Education Sector
The budget is a financial plan, expressed in quantitative terms, and used in controlling government finances for a specified period of time, usually a year (Salawu, 2005). However, in the National Budget, social services (under which Education falls) have consistently received poor budgetary allocations when compared with other sectors. A look at Nigeria’s annual budgetary allocation and expenditure shows that the Federal Government of Nigeria (FGN) has not been committing a proportion of her financial resources to the growth of economic social and community services. This time series data on Federal Government’s budgetary allocation to the educational sector between 2000 and 2014 shows that less than fifteen percent of funds expended by the government during this period was on education. It is doubtful if the situation has improved today (NBS/UNICEF, 2014). The growth rate of Nigeria’s annual budgetary allocation to education shows fluctuating trends as the rate of education increases and decreases at different intervals. However, the year 2014 witnessed a declining rate of -20.31% because there was a decrease in the expenditure on education from the previous year 2013 from N390.42billion to N311.12. This is not good enough because the ratio of total budget allocation to education to total annual budget is a measure of relative degree of priority given to education (CBN, 2014).
Financing Higher Education
Funding of education in Nigeria involves the Federal, States and Local Governments’ Appropriation and Releases as Capital and Recurrent Expenditure for the education sector. It also includes Education Trust Fund, Donor Agencies, Interventions, as well as Scholarship awards by Federal, States and Local Governments National Bureau of Statistics, 2011). The bulk of financing of all federal universities are received from the Federal Government through the National Universities Commission (Hartnett, 2000). The budgeting processes and expenditures have to adhere to budgeting and expenditure formula stipulated by the National Universities Commission (NUC) as follows: 60 percent total academic expenditure; 39 percent for administrative support; and 1 percent for pension and benefits (Hartnett, 2000). It is mandatory for all federal universities to generate 10 percent of their total yearly funds internally through various revenue diversification means (Odebiyi & Aina,1999). The Education Tax Decree No. 7 of 1993 stipulates the payment of 2 percent of assessable profits of limited liability companies registered in Nigeria as an education tax to be disbursed according to the ratio of 50: 40: 10 to higher, primary, and secondary education respectively. The share of higher education is further allocated to the universities, polytechnics, and colleges of education in the ratio of 2: 1: 1 respectively (Ajayi & Alani, 1996).