Human Capital Development and Economic Growth: A Panel Data Analysis

Abstract

Pakistan, akin to other developing nations, is actively pursuing economic development initiatives. In line with this goal, the government of Pakistan, like its counterparts in other developing countries, recognizes the critical importance of investing in human capital as a means to foster sustainable growth and development. Such investments in human capital encompass a wide range of initiatives aimed at enhancing the education, skills, health, and overall well-being of the population. The sensitive issue of the relationship between human capital and economic growth will be thoroughly examined through a comprehensive analysis of a panel of eleven countries. This investigation entails utilizing panel data spanning the period from 1992 to 2014. By employing sophisticated econometric techniques, this study aims to unravel the intricate dynamics between human capital development and economic growth across multiple nations. The panel data approach offers a robust framework for analyzing the collective experiences of multiple countries over an extended time horizon. By aggregating data from diverse economies, this methodology allows for a holistic examination of the relationship between human capital accumulation and economic performance. In investigating the relationship between human capital and economic growth across the panel of eleven countries, several key indicators will be employed. Gross Domestic Product (GDP) will serve as the primary economic indicator, reflecting the overall output and economic activity of each country. Human capital indicators will include investment in education (measured by net secondary school enrollment), investment in health (measured by health expenditures), the size of the labor force (measured by total labor force), and population health (measured by life expectancy at birth). To rigorously analyze this relationship, a range of panel econometric tools will be employed. Firstly, the Panel Augmented Dickey Fuller (ADF) unit root test will be utilized to assess the stationarity of the variables, ensuring the reliability of the subsequent analyses. Following this, the Pooled Ordinary Least Squares (OLS) test will provide initial insights into the relationship between human capital indicators and GDP growth across the panel. The application of panel econometric tools reveals compelling evidence of a long-term relationship between real Gross Domestic Product (GDP) and human capital, as indicated by the fixed effect Ordinary Least Squares (OLS) test. This finding underscores the significance of human capital accumulation in driving economic growth across the panel of eleven countries examined in the study.