ECONOMIC GROWTH AND HUMAN DEVELOPMENT INDEX IN NIGERIA: AN ERROR CORRECTION MODEL APPROACH

Abstract

Economic theory argues that sustainable economic growth leads to economic development. This study examines the relationship between economic growth and development in the context of an error correction model (ECM). The approach is unique in that it provides evidence for the short and long run relationships between the variables and the direction and rate at which disequilibrium between the variables would be corrected over time. Gross Domestic Product (GDP) was used as a proxy for economic growth while the Human Development Index (HDI) was used as a proxy for human development. Irregular secondary data were collected from 1975 to 2008 from the Central Bank Statistical Bulletin, UNDP yearly Report and World Fact Book. Although the ECM showed that economic growth have a negative short run relationship with human development index, the result was not significant. The coefficient for the long run relationship was however significant. The study concludes that policies aimed at accelerating growth would have a negative impact on human development in the short run but in the long run, equilibrium will be restored by HDI adjusting to correct the equilibrium error. This implies that economic growth leads to human development and that macroeconomic policies aimed at achieving sustainable economic growth should be maintained.