ECONOMICS SS3 2020/2021 ACADEMIC SESSION

FIRST TERM SCHEME OF WORK

Week 1: Elements of national income accounting; meaning, major national
income
concepts, factors that determine the national income of a country, methods
of measuring the national income of a country, reasons for measuring
National income, problems of computing national income, uses of national
income, cost of living, standard of living and relationship between cost of
living and standard of living.
Week 2: Elementary Theory of Income Determination: Circular Flow of Income,
factors affecting circular flow of income, concepts of savings, factors that
determine personal savings, concepts of investment, factors that determine
investment, concept of consumption, factors that determine the level of
consumption, propensities to consume, propensities to save and the elementary
theory of the multiplier.
Week 3: Economic lesson from Asian Tigers: factors that account for the rapid
development of the Asian countries, development strategies employed by the
Asia Tigers, economic lesson for the Nigerian economy, the advantages of the
Asian Tigers and challenges facing SMEs in Nigeria.
Week 4: Human capital development: definition, characteristics, distinguish
between human and physical capital , brain drain and its effects on the Nigeria
economy and arresting brain drain.
Week 5: Petroleum and the Nigeria economy: development of petroleum industry
in Nigeria, contribute of petroleum to the economy [positive and negative] and
roles of NNPC in the exploration, production, refining, marketing and distribution
of petroleum products.
Week 6: Manufacturing and construction: meaning, types, contribution of
manufacturing and construction sector to Nigeria’s GDP and roles of
manufacturing and construction in economics development.
Week 7: Service industries: meaning, examples and contribution of service
industries to the development of Nigeria.
living and standard living and standard
Week 8: Agencies that regulate the financial market: agencies that regulate money
market, tools or instruments used in money market, agencies that regulate capital
market, the weapons used and the objectives of regulating capital market.
WEEK ONE

ELEMENTS OF NATIONAL INCOME ACCOUNTING

National Income is defined as the total monetary value of goods and services
produced by a country in a period of time, usually one year.
National income is one of the most vital concepts in economics because it
measures the economic performance of a country. It serves as a yardstick or an
indicator that determines whether an economy is growing, stagnant or declining.

DEFINITION OF IMPORTANT CONCEPTS IN NATIONAL INCOME:

1. Gross Domestic Product (GDP): This is the total monetary value of goods and
services produced in a country within a period of one year by all the residents of
a country regardless of whether they are citizens or foreigners. It is expressed
as GNP less net income from abroad. GDP is the same as Gross Domestic
Income.
2. Gross National Product (GNP): This includes the net revenue realized from the
country’s investments abroad and deduction of earnings of foreigners from
domestic economic activities. GNP = GDP + (x – m) where x stands for net
factor income from abroad while M stands for imports from abroad. The GNP is
also known as Gross National Expenditure.
3. Net National Product (NNP): This is the national income proper. Net National
Product is the difference between Gross National Product and estimated
depreciation or capital consumed during the year. NNP = GNP – Depreciation.
NNP – Personal consumption expenditure Plus govt. purchases of goods and
services Plus private domestic investment Plus exports minutes imports.
4. Personal Income (PY): This is the amount of current income received by
persons or household from all sources, over a given period of time. it is the total
income the people in an economy usually receive, i.e. their actual receipts from
all sources. Personal income also includes the net incomes of unincorporated
business and non-profit institutions and non monetary income such as the
estimate of the value of homes occupied by their owners. The major monetary
components of personal income are labour income, rental income, proprietor’s
income, dividends interest and transfer income.
5. Disposable Income (DY): The disposable income refers to the income that
individuals retain after they have deducted personal income taxes. (It is known
as take home pay). It is the amount which individuals can use either to male
personal outlays or to save. It is the amount of income actually available for the
individual in an economy to use in purchasing goods and services for
consumption. Disposable Income differs from personal income because of
personal income taxes. DY = PY – Direct taxes and transfer
6. Savings: Savings are part of incomes which are not consumed immediately but
reserved for future purposes, S = I; where S = Savings and I = Investments.
7. Per Capital Income (PCY): This is average income of individuals in a given
country. Per capital income is calculated by dividing GNP by the total population.
Per capita income serves as an economic indicator for the level of standard of
living and development..
PCY = Real GNP or NNP
Total Population
8. Cost of living: this means what it will cost an individual or household to
maintain itself with the basic necessities of life. Cost of living is a comparative
term because the cost of living in one city can be compared with another city.
Cost of living is measured with cost of living “Index”.
9. Standard of Living: This refers to the extent to which individuals or families. A
family that enjoys a better life than others is said to have high standard of living.

IMPORTANCE OR USES OF NATIONAL INCOME STATISTICS

1. National income statistics are used for estimating per capita income of a country.
They give us a summary of appropriate changes overtime in the per capital
income and overall standard of living.
2. The national income statistics can give the structure of production at a glance.
This will help to know the combination of each sector in the economy to the
national income of the country in question.
3. National income statistics are useful in the formulation of fiscal policy. The figure
of the previous year is compared with the current year and on the basis of this, a
forecast on the state of the economy is made for the coming year.
4. It provides important information about the structure of the economy. It shows
the progress made in each sector of the economy by giving the clear picture of
the anticipated and realized rate of economic growth.
5. The national income figures can be used in comparing the living standard in one
country with that of another, especially when the countries are in the same level
of economic development.
6. It is used for economic planning. It could be for short or long term planning.
7. The data from national income helps to access the overall development of a
country.
8. National income figures can influence the decision of foreign investors, e.g. an
investor may like to establish an industry where there is high per capita income
as that will induce greater demand for the product of the industry.
9. It is used by the United Nations as a basis for assisting or giving aid to nations,
e.g. UNESCO, UNICEF, IMF, etc.

METHODS OF MEASURING NATIONAL INCOME

The national income of any country can be measured in three different ways:
1. The output method or Net product or Value Added Approach
2. Income method
3. Expenditure Method

1. Output Method / net Product / Value Added Approach

In this method, the national income is arrived at by adding together the market
value of all the output of goods and services by various economic units such as
individuals, firms and the government.
In this approach, only the final goods are considered but not intermediate
productions to avoid double counting. Income is measured in a value added basis
(Value added is the value of cost of output / sales input value).
Problems or Defects of Output Method
1. The proportion of goods consumed by the producers that do not reach market
2. Some services are consumed collectively by the public. It may be difficult to
assign monetary value to them.
3. The services of the house wife are difficult to be computed in monetary terms.
4. The problem of computing or including self service activities.
Illustration:
The table below shows the production in an economy in a particular period:
Stages of production Sales value of Value of purchases
production =N=
(N)
Farmer cotton grower 250,000 50,000
Processing 400,000 250,000
Weaving (textile mill) 1,000,000 400,000
Distribution 1,500,000 1,000,000
Calculate the value of total production in the economy using the value added Approach:

Solution: Value of Total Production - Value Added Approach

Stages of Value of output Less cost of Inputs Value Added
production
N N N
Farmer cotton 250,000 50,000 200,000
grower
Processing 400,000 250,000 150,000
Weaving (textile 1,000,000 400,000 600,000
mill)
Distribution 1,500,000 1,000,000 500,000
1,450,000

Add value of primary inputs = 50,000

Value of Total Production = N1,500,000
Assignment:
The following table represents the total production in a hypothetical economy in a
particular period.
Production stage Value of Input Sale value of
output
Cattle Farming N500 N1,500
Tannery Hides and Skins N1,000 N1,500
Shoe Industry N1,500 N2,250
Shoe shop N2,250 N3,500

Calculate the value of total production in the economy using the “value added
approach”. Show your workings clearly.

2. Income Method
Income Method considers all incomes or aggregate earnings of individuals, firms
and the government for a particular year for their participation in production.
The income received by factors of production in the form of wages or salaries,
rents, interest and profits are added together. To avoid double counting, all transfer
incomes or payments are excluded. Also business expenses are excluded. All goods
and services consumed by the producers are included.
GNP is equal to incomes from wages, salaries, interests, profits, rents and net
income from abroad less transfer incomes or earnings.
The formular below is applied:
Y = P + r + w + I where:
Y = National Income
P = Profits
r = Rents
w = Wages and Salaries
i = Interest
Problems or Defects of Income Method
1. Problem of undistributed profit: Not all profits made by businesses are
distributed. Some are ploughed back in the business to increase the capital
base. Therefore an accurate figure of national income may not be obtained.
2. Problem of obtaining actual value of rent occupied by the owner
3. Problem of estimating income of self-employed people.
4. Incomes received from abroad have to be included while those made by
foreigners are excluded, but there are some that are not made through normal
government channels, which will be difficult to include..
Assignment
The table below shows the income earned by individuals and business enterprises in a
country in a particular year (in millions of naira)
Heading Amount (N.m)
Rental income of persons 100
Wages and supplements 230
Interest (net) 50
Profits 550

Calculate the national income of the country.

3. Expenditure Method
This method measures the total expenditure on goods and services by
individuals, firms and the government in a country.
To avoid double counting, expenditure on intermediate goods are excluded. The
calculation will be based only on the expenditures on the monetary value of final goods
and services. Also savings must be added. Transfer payments such as pension paid
to retired workers, gifts to beggars etc. are not included.
The formula below is applied –
Y = C + I + G + P + (x – m)
Y = National Income
C = Private Consumption Expenditure
I = Private Investment Expenditure
G = Govt. Expenditure on Consumption & Investment
P = Income from Property (abroad)
X = Exports
M = Imports
Problems of Expenditure Method
1. It is difficult to determine private consumption and investment expenditures
2. It is difficult to isolate intermediate goods from final goods. Some production
processes use various inputs with different level of intermediate output.
3. In some less developed countries, pricing system have been complicated by
indirect taxes and subsidies. To obtain actual factor price will be impossible.

Assignment
The table below shows the information on the National Income Account of a country.
Use the table to answer the questions that follow:
National Income Account
Heading Amount (=N=)
Government Final expenditure 600,000
Private Consumption expenses 200,000
Increase ins tocks 150,000
Gross fixed capital formation 800,000
Exports 100,000
Imports 800,000

a) What method of national income measurement is used for the above table?
b) State other methods of measuring national income
c) Calculate the national income from the information, using the formula Y = C + I +
G + (x-m)
DETERMINANTS OF THE NATIONAL INCOME
1. The quantity and quality of factors of production: A country’s stock of the
factors of production such as land, labour, capital and entrepreneur determine
the size of the country’s national income.
2. The rate of technology: The method of production a country adopts determines
the size of that country’s national income.
3. Infrastructures: Infrastructural facilities such as roads, water, electricity etc
improve efficiency of labour and the standard of living. A country which is better
equipped with the facilities stands a better chance of increasing its volume of
production.
4. Economic and Political stability: Violent changes in a country’s exchange rate
as well as its government have adverse effect on her total output.
5. External factors: External factors such as terms of trade, loans, foreign
investments and grants have great influence on the size of country’s national
income and hence its standard of living.

PROBLEMS OF MEASURING THE NATIONAL INCOME

1. Double counting: This involves calculating the value of some commodities
twice or more. The problem is that what constitutes finished products for one
industry may serve as a raw material for another industry.
2. Unpaid goods and services: Some services provided by house wives,
housekeepers etc have no monetary value as their services are not paid for.
Therefore, they are not included in the national income estimation.
3. Insufficient Statistics: Income returns are often inaccurate, incomplete and
sometimes submitted late. This affects national income estimate.
4. Non-payment of rent in owner occupied houses: The value of rents owner
occupied houses would have been paying are not quantified, hence not included
in estimation of national income.
5. False data from inland revenue: False declaration of income by businessmen
in order to pay less amount as tax, high rates of tax evasion are some of the
reasons why data from Inland Revenue should not be relied upon when
calculating national income.
6. Effects of depreciation: It is difficult to calculate the actual amount of
depreciation of some equipment. This is because depreciation is a guess
estimation depending on the method applied.
7. Payment made in kind: Some farmers retain their products for consumption
which are not quantified. Some services are rendered without ascertaining their
values. Therefore, an accurate figure of national income may not be ascertained.

REASONS WHY NATIONAL INCOMES OF WEST AFRICAN COUNTRIES ARE LOW:

1. Absence of Industrialization: In West Africa, there are few industries. This
results in low productivity and decreases a country’s national income.
2. Inadequate capital: In West Africa, there are low savings which results to low
capital accumulation. This means low productivity which results to low national
income.
3. Inadequate Raw Materials: As foods on which industries feed, the inadequacy
of raw materials will result to low productivity leading to low national income
4. Mono-Economy: Most West African countries depend mainly on one sector or
source of income, thus there will be low national income.
5. Inadequate infrastructural facilities: In West Africa, infrastructural facilities
such as roads, water, irregular power supply reduce productivity thereby
reducing national income.
6. Inadequate Manpower: Lack of technical know-how means low productivity,
thus low national income.
7. Over Reliance on Foreign Goods: As a result of reliance on foreign products,
we no longer work hard in order to establish numerous industries to produce
goods locally since we can import from other countries.
WEEK TWO

ELEMENTARY THEORY OF INCOME DETERMINATION (Circular Flow of Income)

The relationship of households and firms is a good illustration of income
determination. The household supply factor services to firms, while firms in turn pay for
those services. On the other hand, firms supply households their goods and services
which household make payments in return. This interflow of activities is called the
circular flow of income.
The inter-dependence or relationship between households and business
enterprises is known as the circular flow of economic life. It involves exchange and is
referred to as a circular flow of payments or the circular flow of income. This describes
the flow of payments from the households to business in exchange for goods and
services.
In a real modern economy, firms organize production and obtain the services of factors
of production from households and pay wages, rents, interest or profit in return. The
firms use the factors of land, labour, capital and enterprise to make commodities that
household consumes. Households earn income by providing factors as services to
firms. They spend this income by buying commodities from firms. Therefore income is
flowing from the households to the firms and from the firms to the households by way of
factor services used in production.

Circular flow of Income and Expenditure in a two sector economy

Consumption Expenditure

Productive market

Business Household
Sector Sector

Factor market

Income payments
Circular Flow of Income and Expenditure
With inclusion of leakages (savings) and injection (investments)

Investments capital Savings

Market

Consumption expenditure

Productive Market

Business Household
Sector sector

Factor Market

Income Payment

IMPORTANCE OF CIRCULAR FLOW OF INCOME

1. The economy can easily be assessed. The flow of income will indicate the
direction of the economy.
2. The problem of disequilibrium is brought to light through the study of circular
flow. It helps in restoring the equilibrium.
3. Fiscal policy can be properly managed and implemented through the
application of circular flow.
MARGINAL PROPENSITY TO CONSUMER
This is a change in consumption resulting from a unit change in income. The
term marginal means extra, additional or reduction. It is the additional amount
consumed as a fraction of additional disposable income.
MPC = in consumption
In Disposable income
∆C
Numerically, it is put as MPC =
∆Y
Marginal Propensity To Save
This is a change in saving resulting from a unit change in disposable income. It
is the fraction of each extra amount that goes to savings instead of to consumption.

MPS = Change in Saving

Change in Disposable Income
Numerically, it is put as MPS = S
Y
The relationship between marginal propensity to consume and marginal propensity to
save is that they complement each other. That is, MPC + MPS = 1; Then MPC = 1 –
MPS and MPS = 1 – MPC.

Application of MPC and MPS

e.g.1: If total national income increases from N200m to N260m and total national
consumption increases from N140m to N180m. Find: (i) MPC and (ii) MPS

Solution:
= MPC = C
Y
C = N180M - N140M = N40M
Y = N260M - N200M = N60M
MPC = 40 = 2 or 0.67
60 3
(ii) MPS = 1 - MPC
1 – 0.67 MPS = 0.33

e.g.2: If total national income increases from N450m to N570M and leads to a rise of
total national savings from N46M to N106M. Find the MPS?

Solution:
MPS = S
Y
S = N106 – N46 = N60
Y = N570 – N450 = N120

:- 60 = 1
120 2 MPS = 0.5

Class work:
If the monthly income of an individual increases from N30,000 to N45,000 and he
increases his level of consumption by N6,000. Calculate: (i) MPC (ii) MPS.

Average Propensity to Save

The APS is the proportion of national income that is saved. To calculate APS, we divide
total national savings by total national income.

APS = Total National Savings

Total national Income

e.g. 1: If total national income is N600 and total national savings is N60M. Find the
APS.
Solution:

APS = N60 M = 1
N600 10 = 0.1

Average Propensity to Consume

The average propensity to consume is the proportion of national income that is
consumed. To calculate APC, we divide total national consumption by total national
income.
APC = Total National Consumption
Total National Income
e.g. 2: If total national income is N1,500 and total national consumption is N300, find
the average propensity to consume.

APC = N300 = 1
N1,500 5 = 0.2
The Theory of Multiplier Concept (MC)
The multiplier shows the effect of a change in any of the components of
aggregate demand such as private consumption, private investment, government
expenditure, exports and imports on national income.
The multiplier shows how much change in the national income will be brought
about by a given change in investment. It is the ratio of change in income to a change
in any of the components of total spending. The multiplier is the ratio of increase or
decrease in income to increase or decrease in consumer spending.
On the other hand, when the change in investment is a decrease, then the
national income will decrease according to the size of the figure. The multiplier is based
on the interdependence of income and expenditure within the circular flow of income. It
is because of this interdependence that an increase in investment increases total
national income.

Consumption Expenditure and the Multiplier

An increase in consumption expenditure leads to a higher increase in national
income and vice-versa.

M= 1 = 1 = Y
1 – MPC MPS C

The higher the MPC, the higher the multiplier effects, but the higher the MPS, the
lower the multiplier.

e.g.I: If the marginal propensity to consume is 0.75, calculate

(a) The multiplier
(b) By how much must consumption expenditure be increase if income is increased
by N2,000?
Solution:
(a) M = 1 = 1
1 – MPC 1 – 0.75

= 1 :. M = 4
0.25

(b) M = Y
C
4 =
N2,000 cross and multiply
C
4C = N2,000
C = N2,000
4 C = N500

Investment Expenditure and The Multiplier

If investment expenditure is increased, there will be an increase in national
income which is greater than the increase in investment expenditure.

M= 1 = 1 = Y
1 – MPC MPS I

e.g. 2: If the marginal propensity to save is 0.5, calculate:

(a) The Multiplier
(b) The level of investment which is required to raise income by N3,000
Solution
(a) M = 1
0.5
M = 2

(b) M = Y
I
2 = N3,000
I
2I = N3,000
I = N3,000
2
I = N1,500

2009 NECO Assignment

Given the consumption function: c = a + by
Where, a = constant
b = MPC
y = national income
Calculate:
(a) i MPC if MPS = 0.25
ii. C if a = N10 million and y = N200 million using the MPC in (ai )
above.
iii. the multiplier
(b) Explain why the constant “a” is always positive.
Government Expenditure and The Multiplier
The government expenditure has multiplier effects on the national income.
Increased government spending increases national income at an increasing rate, while
a reduction in government spending will have a reverse effect.

M = 1 = 1 = Y
1 – MPC MPS G
1
e.g. 3: If the marginal propensity to consume is 0.6, by how much will national income
increase if government expenditure is increased by N4,000.
Solution:
M = 1 = Y
1 – MPC G

1 = 1
1 – 0.6 0.4 M = 2.5

(b) M = Y
G
2.5 = Y
N4,000
Y = N4,000 x 2.5, Y = N10,000

Assignment
1. If the total income increased by N1,000 and total consumption expenditure
increased by N800. Calculate the;
(i) Marginal propensity to consume
(ii) Marginal propensity to save
(iii) Multiplier
(iv) By how much should government expenditure be increased to raise
national income by a further N4,000?
2. What economic policies should the government of your country undertake to
arrest the fall of national income?
3. What economic policies can the government of your country undertake to control
an economic recession and a high rate of unemployment?
WEEK THREE

ECONOMIC LESSONS FROM ASIAN TIGERS.

The term “Asian Tigers” refers to the economies of South Korea, Taiwan, Singapore, Hong
Kong [administrative zone of China] and Indonesia. From early 1960s and 2000s, a period of 40
years, their economic success has served as role models for many developing countries and
therefore, there is the need to study the steps and policies that metamorphosed to their rapid
economic growth and development.
The four Asian Tigers [also known as the “four or five Asian Dragons” or “Four Little
Dragons” in Chinese and Korean]. They underwent rapid industrialization and maintained
exceptionally high growth rates of more than 7 percent a year. In that short period of time [40
years], those five countries really became a big part of the workshop of the world. They were not
just regional players expanding locally, they were also expanding globally. For this reason, a lot
of observation from around the world began to look at the Asian Tigers as sort of a standing
lesson to the rest of the world.
Factors that Account for the Rapid Development of South-east Asian Countries.
1. High saving rate: The Asian Dragons embarked on very high savings rates which led to
very high investment rates. They invested heavily on plants, properties and equipments,
infrastructure, roads, airports and seaports, education and people’s skills which increased
productivity.
2. Presence of natural resources: Agricultural and mineral resources were abundantly
available for the Tigers to use which aid rapid economic development of the Asian countries.
They formed Association of South-east Asian Nations [ASEAN], saving up to 30% - 40% of
income.
3. Export – led growth: The Asian Dragons pursued import substitution industrialization by
which consumer products imported for these countries initially are increasingly being made
in China, Korea, Taiwan, etc.
4. Cheap abundance of labour supply: There were abundant supplies of cheap skill and
adaptable labour in the Tiger for rapid economic growth.
5. Good political stability: The Tigers enjoyed a stable favourable political environment for
industrial and commercial growth unlike some Asian and African countries.
6. Strong leadership: Chinese political and other Asian Dragons have greater responsibility
to their nations than to themselves. Strong leadership from the head of states or governments
has been a major factor contributing to their economic success.
7. Development of large and fast growing markets: The Asian Dragons succeeded in
developing relatively large and fast growing markets for consumer goods and services all
over the world.
8. Rapid learning capabilities: The South East Asian Tigers have rapid learning capabilities,
skills in utilizing new technologies and scientific discoveries in production, construction and
extraction. There is a highly positive work ethics.
9. Economic diversification: The Tigers have started to diversify into Research and
Development, specialist manufacturing and hi-tech industry. They are investing in labour and
capital in innovation so that it can sustain its economic growth and reduce the risk involved
in having a narrow economic base.
10. Investment in infrastructure: The governments have built many new roads, improved the
rail system and made their rivers navigable all year round. For example, China has five of the
ten largest container ports in the world.

Development Strategies Employed by the Asian Tigers

1. A stable business environment: The Asian Tigers employed economic respect for
property rights and there was low inflation that encouraged long term investments in
physical capital. For the most of the revolution period, exchange rates were pegged
against the dollar to control inflation
2. Cautious macroeconomic policies: The various governments of the Asian Tigers were
very cautious with their macroeconomic policies adopted. There were both budget
deficits and the size of government spending remains small. There were high savings
rates, combine with fairly accurate price signals with high levels of productive
investments.
3. Investment in education and skill: Education standards were and are extremely high. The
proportion of people graduating from high school was higher than almost anywhere in
most Asian countries and Africa.
4. Increased exports: Another element of the East Asian Miracle was their successes at
exporting. They enthusiastically embraced trade, especially export. In parallel, imports
also grew rapidly. They encouraged foreign direct investment [FDI].
5. Advance in technology: This process has been successfully managed and significant
advances have been achieved in growth rates and employment levels.
6. Setting up the pilot projects: As part of its on-going studies, the Organization for
Economic Co-operation and Development [OECD] has identified many pilot projects in
South-east Asia which embrace skill upgrading and to tackle issues of human capital
flight.
7. Involvement of some international organizations such as OECD, ILO, and [Local
Economic and Employment Development] LEED.
8. The various governments of the “Asian Dragons” were pragmatic rather dogmatic. They
were willing to abandon initiatives that went wrong and continued to promote
competition between firms.

Economic Lessons from the Asian Tigers for the Nigeria’s Economy.
The Nigeria economy can learn from the Asian Tigers in a number of ways:
1. Formulation and implementation of sound deliberate government policies: Certain
policies must be put in place that will help the growth of the economy
2. Strengthening the development of agriculture: Efforts have to be made by the government
to transform agriculture in such a way that such improvement will lead to majority to
migrate to industrial sectors as it happens in Japanese miracle. The Bank of Agriculture
[BOA] should be funded to give loans to qualified farmers to engage in agriculture.
3. Encouraging industrial development: There should be a deliberate formulation of policies
towards industrial development. Commercial banks such as Bank of Industry [BOI] have
to give loans to industrialists in order to develop that sector.
4. Development of human capital: This can be achieved through higher institutions training,
skill acquisition, in service training etc, so that knowledge and skills needed to work in
these industries can be acquired.
5. Development of small and medium scale enterprises [SMEs]: If Nigeria is to achieve an
appreciable success towards attaining economic development; one of the best ways
would be to vigorously pursue the development of its SMEs. There is need for clear
national development objectives to meet the need of the SMEs sector.
6. Development of infrastructures: The government should declare emergency on the
provision of good infrastructural facilities such as road, electricity, water supply, etc. An
improved infrastructural service will serve as a catalyst in stimulating investors’ interest
vis-à-vis industrial development. Lack of access to finance:

Challenges Facing SMEs in Nigeria.

1. People are not getting the credits they need to grow their businesses.
2. Insufficient technical manpower and managerial skills.
3. Inconsistent government policies.
4. Multiple taxation at the state and local government level.
5. Bad road network, irregular power and water supply.
6. Inadequate raw materials for SMEs.
7. Insecurity, civil unrest and instability in some parts of the country.
8. People’s mindset concerning local and foreign goods.
9. There is inadequate transfer of technology and human capital to Nigeria.
10. Inadequate modern market to attract potential SMEs investors.

Advantages of the Asian Tigers.

1. A reasonably well developed level of infrastructures such as roads, rails and ports [air
and sea].
2. Relatively well educated population with existing skills.
3. Cultural traditions that appreciate education and achievement.
4. Good geographical location, especially for Singapore as it is situated between the Indian
and Pacific ocean, which made it perfect for trading, import and export.
5. Government support, for example, offering low interest rates in bank loans.
6. Less rigid laws and regulations on labour, taxation and pollution, allowing more
profitable operations [low cost manufacturing with cheap labour].
WEEK FOUR

Human Capital.
Human capital is the stock of productive qualities the activate the labour force of a country.
Such productive qualities result from expenditure on education, health, skills, on the job training,
abilities, medical care, etc, of the labour force.
Human Capital Development.
This is a deliberate economic strategy of allocating expenditure to the education and training
of human beings of a country. It is a systematic investment in all the productive qualities of
labour force through the provision of labour education, training, health and nutrition to the
people of a country.
Human Capital Formation.
This is a deliberate approach by which educated, skilled and trained persons are increased in a
country. It involves continuous allocation of resources to improve the value and quality of a
country’s human capital through better skills, better health care and better nutrition which are
vital to the economic and political development of a country.
Factors that Influence the Development of Human Capital.
1. Education: Good education improves the quality and quantity of man-power and enables
the skilled workers to manage the developing technology of the county with maximum
productivity.
2. On the job training: This reduces the low literacy rate of work force. To improve the
efficiency of human capital, the provision of training facilities, practical applications and
refresher courses is a prerequisite.
3. Man-power planning: The availability of proper man-power planning is critical to
achieving improved human capital formation.
4. Health and nutrition: A healthy and well nourished workers have the opportunity of
acquiring better training and skills thereby increasing the formation of human capital in a
country.
5. Housing facilities: Housing is a sine-qua-non to building a country’s human capital to a
satisfactory level.
6. Water, electricity and other infrastructures: Regular and availability of these facilities in
a country will make research and development by human capital possible.
7. Political stability: The development of human capital is only effective and possible in an
atmosphere of peace, law and order in a country. A country characterized by social
unrest, rancor, violence, war, ethnic discrimination and religious bigotry cannot breed the
expected human capital.

Contributions of Human Capital to Economic Development.

1. Co-ordination of other types of capital: Human capital coordinates other types of
capital such as social capital, fixed capital, working capital, personal capital, etc.
towards the achievement of economic growth and development.
2. Full utilization of economic resources: Human capital allocates economic resources
in the best possible ways to achieve economic and technological growth in a country.
3. Maintenance of plant and machinery: Skilled human capital is required to maintain
the plant and machinery in a country.
4. Effective planning; A result-oriented economic planning is possible if there are a
large number of educated and skilled human capitals such as engineers, technologists,
trained doctors and healthy labour force.
5. Improved growth of infrastructure: Human capital helps to improve socio
infrastructural facilities such as health, transport, road network, communication etc.
6. Self employment growth: The acquisition and development of human capital skills
and training prepare labour for self employment and entrepreneurial management.
7. Improved industrial performance and development: Human capital formation is
needed to organize and coordinate plant and machinery and other infrastructure for
industrial growth and development.
8. Required optimum efficiency of other factors: It is easier to improve other factors
such as labour and capital once there is skilled human capital.
9. Modern means of production: Human capital formation leads to the introduction of
better and improved methods of production in all sectors of a country’s economy.
This boosts output using less raw materials within the shortest possible time.
10. Reduction of poverty and better standard of living: The presence of trained human
capital reduces poverty and promotes economic progress in a country.

Factors Militating Against the Efficiency of Human Capital.

1. Poor and inadequate infrastructure: Poor infrastructural facilities such as electricity,
road network water etc. affects the efficiency of human capital.
2. Lack of peace of mind: Absence of peace of mind triggered off by violence and war
retards the efficiency of human capital.
3. Poor working conditions: Poor facilities such as poorly ventilated offices, epileptic
power supply, poor recreation facilities etc, contribute to the reduction of human
capital efficiency.
4. Lack of job security: If organizations do not offer safety schemes to work force,
human capital efficiency is bound to reduce.
5. Poor and irregular wages and salaries: Where wages and salaries are meager and
irregular at the same time, productivity is bound to be low.
6. Harsh climatic conditions: Unpleasant and unfavourable weather affect the
efficiency of human capital in the production of goods and services.
7. Poor employer-employee relationship: Absence of cordiality between employer and
employees contribute to inefficiency and low performance level in many
organizations and countries.

Characteristics of Human Capital.

1. Human capital is mobile: Human capital is mobile both geographical [from one place
to another], occupational [from one job to another] and industrial [from one industry
to another].

2. Human capital has feelings: Human capital cannot be used anyhow as its consent
must be sort before it is used in production.
3. Human capital is skillful: The productivity of workers is closely tied to their skills,
education and qualifications. Just as factories or companies invest capital in
machinery that increases productivity, so also companies invest in education and
training that increase productivity.
4. Human Capital can acquire work experience: The experienced employees are, the
more they create value. They can act on their own initiatives.

5. Human capital has social and communication skills: Human capital has good
customer service. It can relate to other employees, communicate and respond to
issues.
6. Human capital has habits and personality traits: Habits and personality traits can be
a source of value. The worker who is disciplined, punctual, meets deadlines, has a
positive outlook, and is a team player generates more value than one who lacks these
qualities.
7. It requires motivation: For human capital to perform efficiently and increase its
productivity, it must be motivated in one way or the other.
8. Human capital is not fixed: The supply of human capital unlike land is not fixed as it
varies in quantity and quality.
9. Human capital controls other factors of production such as land, and capital to make
them more meaningful.
10. Human capital is perishable: Knowledge can diminish overtime as a result of
continued unemployment, under-employment, age and death.
Differences Between Human Capital and Physical Capital.

Human Capital Physical Capital

1. They are human assets. They are non-human assets. That is, they are made
by man.
2. They are skills, knowledge, competencies They are assets which have been manufactured and
contributed by human to a business. That is, used in production. That is, they are tangible assets.
they are intangible assets.
3. They are controlled by themselves [or by They cannot control themselves expect by aid of
human]. human beings.
4. It has feelings. That is, its consent must be It has no feelings. Its consent do not need to be
sorted before it can be used in production. sorted before it can be used in production.
5. The reward of human capital is wages and The reward for physical capital is rent and interest.
salaries.
6. They are labour related assets. They are related to plants, machinery and vehicles.
7. They can appreciate through education, training They only appreciate through changes in economic
and experience. trend.
8. They can depreciate through bait health and They can depreciate through exposure to physical
poor training. condition, use and age but not bad health.
9. They are acquired through employment, formal They can be acquired through direct purchase s or by
education, job training, on the job learning and lease or hire purchase.
life experiences.

Brain Drain [Human Capital Flight].

Brain drain is the loss of skilled, intellectual and technical labour to more favourable
environment outside the country. It is a situation where a significant large number of highly
skilled, knowledgeable and well educated individuals leave a particular geographical area,
usually their countries for other nations as a result of search for greener pastures.
FACTORS THAT LED TO BRAIN DRAIN.
1. Self fulfillment: Apart from the acquisition of financial gains, individuals leave for other
countries to fulfil their professional dreams in life.
2. Economic Recession: The collapse of economic activities in most developing countries
drives potential entrepreneurs to developed countries.
3. Political Instability: Armed conflicts, ethnic discrimination, social unfest and insecurity
in the domestic economy propel many professionals to lose confidence in the government
of a country and choose to migrate to countries that are politically stable.
4. Selfish Successive Leadership: The self centeredness of our leaders led to resources
being siphoned into private pockets to the detriments of the masses. This led to educated
and skilled professionals migrating to other countries.
5. Poor Working Environment: The lack of requisite working condition led to out flux of
doctors and lecturers to developed countries like Europe and America that have better
equipment and better working conditions.
6. Poor remuneration: Most professionals in both private and public sectors remained
under-paid in Nigeria. Hence, they struggle to migrate to other countries where they can
be better paid for their productivity.
7. Better job opportunity in developed countries: Most of our skilled professionals migrate
to developed countries because of favourable job opportunities.
8. Human rights abuses: Oppressive leadership intimidate skilled individuals to migrate to
more democratic economies where human rights are adequately protected.

The Consequences of Brain Drain on the Economy.

1. Loss of economic development and advancement: Absence of key professionals in
major sectors of our economy brings down economic growth and development.
2. Reduced consumption spending and demand: Reduction of key professionals who
usually have surplus remuneration to spend leads to fall in consumer’s spending on goods
and services.
3. Loss of expertise: Emigration of talented individuals to other countries leads to loss of
rare human resources. This causes a fall in economic efficiency and productivity in major
sectors of the country’s economy.
4. Loss of investible capital: The emigration of skilled individuals reduces the amount of
funds that can be tapped as capital for investment.
5. Less tax revenue: The emigration of skilled professionals to other countries reduces the
population of people who pay tax to support government expenditure programmes.
6. Poor international rating: A country’s “Human Development Index” [HDI] and its
impact on the domestic economy are rated low internationally because of brain drain
problems.
7. Poor healthcare: Due to lack of qualified health care workers such as doctors, nurses,
midwives etc in the health care sector, there is an abysmal poor condition of medical care
in most West African hospitals and other medical institutions.
8. Brain waste: Investigation has shown that most skilled professionals who emigrated to
developed economies in a bid to enjoy greener pastures end up wasting their brain
because they could not get the desired job.
Measures that can be Taken to Minimize the Effects of Brain Drain on the Economy.
1. Increased provision of social and economic infrastructure: The presence of these
facilities will encourage skilled professionals to stay and invest in their countries of
origin.
2. Improvement on salary scale and fringe benefits: This will help to minimize the
emigration of professionals to developed countries.
3. Improvement on healthcare system: Research institute should be provided and equipped.
Medical personnel should be regularly and adequately paid. This will motivate health
workers to remain their countries.
4. Improvement on the security network: Government of developing countries should
increase expenditures on security of lives and properties.
5. Creation of job opportunities: This can be done by constant and regular spending on the
development of infrastructure, entrepreneurship skill acquisition training and small and
medium scale enterprise loan scheme. This effort will greatly reverse the trend of brain
drain experienced in developing economies.
6. Invitation of Africans in Diaspora: Through internet communication systems,
governments of developing economies can create a memorandum of understanding
between them and professionals working abroad. The MOU should require these talented
individuals to offer their skills and invest in our domestic economies.
7. The provision of job security system: Both the private and public sector scheme, gratuity
scheme, and regular promotion. Where these are present, workers are bound to remain to
contribute to the growth of the domestic economy rather than leaving for other countries.