A cointegration approach to modeling human capital formation, self-employment, and economic growth: evidence from Pakistan

Abstract

This study aims to empirically investigate the dynamics of relationship among human capital formation, self-employment (SE), and economic growth in Pakistan. Using quarterly data of primary school enrollment, SE, and GDP per capita, we employed ARDL bound testing approach to cointegration covering the time span of 1995–2010. We found that in the long run, primary school enrollment, high school enrollment and SE have significant impact on economic growth. Enrollment in primary schools (EP) has a strong positive and significant impact on economic growth, whereas enrollment in high school has a relatively small positive and significant impact on economic growth in the long run in Pakistan. Further, SE has a small, positive and significant impact on economic growth in the long run. In short run, enrollments in high schools and SE have weak positive impact on economic growth whereas, EP has a strong positive and significant impact on economic growth in Pakistan. Further it is found that that there is unidirectional long run causality from self employment to economic growth followed by the bidirectional short run causality between economic growth and high school enrollment, GDP per capita and primary school enrollment, high school enrollment and primary school enrollment.