Human capital accumulation and economic growth of Ethiopian economy

Abstract

Economic theory, empirical studies and public policy have underlined the importance of the relationship between human capital accumulation and economic growth. Several developing countries have included human capital development as an integral part of their national development plans and have devoted huge financial resources as a cornerstone to promote economic growth. The purpose of this study is to examine the long-run effects of human capital accumulation on the economic growth of a developing economy using evidence from Ethiopia. The study employed the human capital theory of economic growth and the augmented Solow-Swan model as a theoretical framework, and the ARDL bounds co-integration and error correction mechanism for parameter estimation. Time-series data, covering the period 1980/81 to 2019/20, were employed to examine the long-run relationship between economic growth and its dynamic regressors of human capital indicators. The secondary and tertiary educational attainments of the labour force and life expectancy at birth have a significant positive effect on economic growth of Ethiopia, whereas primary education attainment and adult mortality rate have an insignificant negative effect. On the other hand, physical capital accumulation has positively contributed the country’s economic growth, but trade openness and external debt adversely affect it. Thus, it is suggested that the policymakers should strengthen the country’s institutional capacity while increasing the number of healthy members of the labour force that should also be equipped with quality-based educational attainments.