Impact of Formal Education on Economic Growth in Nigeria: A Composite Analysis

Abstract

The value of real gross domestic product has been low, and the actual growth rate of real gross domestic product has fallen below the targeted growth rate on most occasions in Nigeria, despite the huge turnout of graduates from the formal education system. Therefore, this study examines the impact of formal education on economic growth in Nigeria from 1981 to 2020. The specific objectives of the study include the determination of the impact of composite formal education index and changes in the National Policy on Education on real gross domestic product, and the investigation of their direction of causality in Nigeria. The model specification was guided by the endogenous growth theory and the peculiarities of the Nigerian economy. The study employed the autoregressive distributed lag and the Toda-Yamamoto causality methods of data analysis. Short-run result indicates that composite formal education index (CEIND) made insignificant positive impact on real gross domestic product, (RGDP) while National Policy on Education (NPE) made significant positive impact on RGDP. Long-run result shows that the composite formal education index made a significant positive impact on real gross domestic product whereas National Policy on Education made insignificant positive impact on RGDP. Toda-Yamamoto causality test reveals that both CEIND and NPE stimulate real gross domestic product in Nigeria without a feedback effect. Diagnostic tests for normality, serial correlation, heteroskedasticity, and multicollinearity confirm the justification and validity of the findings. The study recommends vocational, innovative and creative education; increased budgetary allocation to the education sector; extension of the compulsory tuition-free primary education to the secondary education level, and adequate motivation of formal education workers to promote formal education for economic growth in Nigeria.