Human capital and its impact on Ethiopian economic growth: ARDL approach to co-integration

Abstract

Maintaining human capital at an optimal level is among the important mechanisms for ensuring steady economic growth. This study aims to examine the impact of human capital on Ethiopia’s economic growth. The study used the ARDL model applying annual data for the period 1980 to 2020. The ARDL-bound test was used to evaluate the presence of con-integration between human capital and independent variables. The study also applied the augmented Dickey-Fuller and Phillips-Perron unit root tests to check the stationarity of the variables. The test result presented that almost all variables become stationary after the first difference. Accordingly, the result from the bound test indicated the existence of a long-run relationship between the dependent variable and independent variables entered into the model. The estimated error correction model with a − 0.9528 coefficient also confirmed the existence of co-integration with a high speed of adjustment towards the long-run equilibrium. In the long-run real GDP, education expenditure, health expenditure, labor force, gross capital formation, total government expenditure, official development assistance, secondary school enrolment, consumer price index, drought, and policy change have astable long-run connection. The finding indicates an increasing ratio of health expenditure and secondary school enrollment should be designed, among others, to contain improved human capital in Ethiopia.