Human Capital Investment and Economic Growth: A Test of Endogenous Growth Theory in Two Developing Countries

This paper evaluates the relationship between human capital investment and economic growth in two sub-Saharan African countries (Kenya and South Africa). The paper applied a quantitative approach and secondary data were collected from the World Bank economic and education indicators from 1987 to 2016 (30 years). A cross sectional panel data arrangement gave a total of 60 observations and the fixed effect panel regression was applied using the Gretl econometrics package. The paper adds a nuance to previous methods and results by adding yearly time dummy in the model. Results show that investment in human capital is positively related to economic growth in the two sub-Saharan African countries. The paper highlights the significance results from time dummies, which shows that time is of essence in empirical analysis of this relationship and that investment in education would yield positive result on economic growth with timing considerations; this indicates that a waiting attitude is essential when investing in human capital. The paper recommends that economic policy makers should, in addition to universal primary education, commit more resources to secondary and university education to increase the stock of human capital in Africa as secondary and university education produce middle and high-level human capital. Improved policy that would fortify the colleges and universities in Africa would produce and retain quality human capital in Africa to spur economic growth. It also recommends that future research should consider the inclusion of yearly dummies when analysing the relationship between human capital investment and economic growth.