Does higher level of education of the labor force cause growth? Evidence from Bulgaria

Abstract

This study tries to give new evidence on the relationship between human capital and output per capita in the former centrally-planned economies. Educational attainment of the labor force is used as a proxy for the human capital stock in Bulgaria. The empirical models are based on the extended Cobb–Douglas production function with labor, human capital as well as physical capital. In addition, the reduced form specifications include export and foreign direct investments. The econometric outcome suggests that an increase of the share of people with upper secondary education in the labor force is not related to the rate of long-run growth. Moreover, it is inversely related to the shortrun changes in real output. On the contrary, a positive impact is derived for tertiary education. In general, the study does not fully support the hypothesis that the higher average educational level of the population fosters growth. Export, physical capital and foreign direct investments turn out to be the driving forces of Bulgaria’s growth. A partial correlation analysis implies that the quality of human capital measured by foreign language proficiency could explain the insignificant effect of secondary education.