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Public spending on human capital formation and economic growth in Pakistan

Author

Listed:
  • Syed Ammad Ali

    (PhD, Research Fellow, Department of Economics University of Karachi)

  • Qazi Masood Ahmed

    (PhD, Director, Centre for Business & Economics Research, Institute of Business Administration, Karachi)

  • Lubna Naz

    (PhD, Assistant Professor, Department of Economics, University of Karachi)

Abstract

This present paper captures the growth effects of public physical and human capital investment, which highlights the relative efficacy of these types of investments on sectoral and aggregate output, employment and private investment, and indicates which sector of the economy of Pakistan is benefiting the most from these investments. It uses the production function approach based on the Mankiw, Romer and Weil (1992) growth models and applied the Fully Modified Ordinary Least Square (FM-OLS) technique using data from the Pakistan economy during the period 1964-2013. The results show that human capital investment in the public sector has a positive significant effect in all models. The coefficient indicates that a 1 per cent change in human capital investment will increase the output of the manufacturing sector by 0.44 per cent; the output of the services sector by 0.15 per cent; the output of agriculture sector by 0.094 per cent; and the aggregate output by 0.027 per cent. The public physical investment has the highest impact on manufacturing sector output (0.084 per cent) followed by aggregate output (0.034 per cent). The estimated elasticities indicate that at the sectoral level, public human capital investment has a greater output effect than the public physical investment, while at the aggregate level, the public-physicalinvestment effect dominates.

Suggested Citation

  • Syed Ammad Ali & Qazi Masood Ahmed & Lubna Naz, 2016. "Public spending on human capital formation and economic growth in Pakistan," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 23(1), pages 1-20, June.
  • Handle: RePEc:unt:jnapdj:v:23:y:2016:i:1:p:1-20
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    More about this item

    Keywords

    Economic growth; physical capital; human capital; Pakistan;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H40 - Public Economics - - Publicly Provided Goods - - - General

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