Impact of Educated Labor Force on Economic Growth of Pakistan: A Human Capital Perspective

Abstract

A considerable body of research has concentrated on the role of human capital investment in explaining the level and variation in production and growth and it has been shown that long-term sustainable growth and development across countries is driven to a large extent by productivity growth. Most of the studies in Pakistan measure human capital by using its proxy as enrollment rate of primary, secondary and tertiary level or expenditure on education. This widespread practice has coexisted with longstanding doubts about using school enrollments as a measure of human capital since there exists a gap between school attendance and entrance into the Labor Market. Further, public expenditure on education is not enough proxy in case of Pakistan because of the fact that there is a large private education sector in the country. Taking cognizance of it, instead of using the school enrollments and public expenditure on education as a measure of human capital, this research examines the role of human capital formation described by education levels of labor force in Pakistan which is more direct measure of human capital than school enrollments and public expenditure on education. Data of educated labor force at primary secondary, tertiary and higher level is collected from Pakistan. Time series data is used from the period 1973 to 2013. The data is taken from various issues of Pakistan Economic Survey, Pakistan Labor Force Survey, Federal bureau of statistics, State Bank of Pakistan Annual reports and 50 Years statistics of Pakistan. Johnson’s Cointegration, Error Correction model (ECM) and vector error correction method (VECM) Granger Causality statistical tools are used to measure the impact of human capital on economic growth in the long run and short run. Finding shows that all proxy variables of human capital in this study have significant impact on economic growth in the long run; however, some variables are found insignificant in short run. This study concludes that education is a key determinant of Economic growth.