Impact of Human Capital on Economic Growth- A Growth Accounting Equation for Pakistan

Abstract

The interest of researchers in exploring the various dimensions of human capital and observing its considerable impact on economic growth has caused the human capital theory to become a fascinating field of research for economists. The study focused on the impact of the human capital along with estimating a growth accounting equation for Pakistan. To fulfill the objectives of the study, two models have been estimated utilizing time series data from year 2001 to 2014. The first model transforms the standard Cobb-Douglas production function to its linear form using trans-log function. The 2nd model used three proxies of education enrolment at various levels along with two health proxies for human capital. The result drawn from model first concluded that Pakistan economy undergone through decreasing returns to scale during period under consideration. The 2nd model showed that the output per person is positively related to middle & higher secondary education enrolments while the enrolment at higher secondary education level & life expectancy showed a non-significant relationship contrary to infant mortality rate & primary education enrolment that showed negative and significant relationship. The study recommended policy implications that amongst the chosen enrolments at three levels, the education department may focus on enhancing enrolment at middle level while the health department may focus on reduction in infant mortality rate for enhancing per capita output in the country. The study has emphasized, for the first time, the need for inclusion of human capital as a separate factor of production like traditional labour and capital in national accounts statistics of Pakistan.