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Human capital formation and economic development in Pakistan: an empirical analysis

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  • Chani, Muhammad Irfan
  • Hassan, Mahboob Ul
  • Shahid, Muhammad

Abstract

There is widely accepted concept in economic theory that human capital plays positive role in determining national income. Formation or accumulation of human capital and economic development for human welfare are the major targets of economic policy of each country. This study investigates the casual relationship between economic development and formation of human capital in Pakistan. Based on endogenous growth theory, this study empirically test the standard growth model consisting of Gross Domestic Product (GDP) per capita as a dependent variable and human capital formation, investment in physical capital and labor force as independent variables. Auto Regressive Distributive Lag (ARDL) bound testing approach to co-integration is used to check the long run equilibrium relationship between the variables included in the model. For checking the causal relationship between economic development and human capital formation, Pair-wise Granger Causality test is utilized using the time series data ranging from 1972 to 2009. The results of the co-integration show that the variables are co-integrated. They have long run stable equilibrium relationship. The results of the causality test show that there is bidirectional causal relationship between economic development and human capital formation.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 38925.

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Date of creation: 2012
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Handle: RePEc:pra:mprapa:38925

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Keywords: Human capital formation; physical capital; welfare; education; health; labour force; cointegration; unit root;

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  1. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(1), pages 83-116, February.
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  8. Chani, Muhammad Irfan & Pervaiz, Zahid & Jan, Sajjad Ahmad & Ali, Amjad & Chaudhary, Amatul R., 2011. "Poverty, inflation and economic growth: empirical evidence from Pakistan," MPRA Paper 34290, University Library of Munich, Germany, revised 2011.
  9. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
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  12. E. N. Appiah & W. W. McMahon, 2002. "The Social Outcomes of Education and Feedbacks on Growth in Africa," Journal of Development Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 38(4), pages 27-68.
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