Economic growth and human capital: An approach from dynamic stochastic general equilibrium and vector error correction modelling for Colombia

The analysis of economic growth determinants has allowed for the development of an extensive body of literature that has recognized the role of human capital as the main explanatory variable of countries' economic growth. However, the evidence shows that this relationship does not always occur in such a precise way; therefore, it is necessary to analyse the dynamics of each economy. In Colombia, although there is empirical evidence that correlates these two variables, economic growth and human capital, there is little research that explains the behaviour of growth and human capital expected in the long term. The objective of this research was to determine the interactions between human capital and economic growth in long-term dynamics in Colombia. To achieve this goal, a dynamic stochastic general equilibrium (DSGE) model was applied with parameters calibrated from empirical evidence in Colombia. On the other hand, a vector error correction model (VECM) was applied to the student-teacher ratio series and per capita GDP in Colombia for the 1970–2019 period. The results of the DSGE model indicate that economic growth has a positive effect in the long term. These results are reinforced through the VECM. Disturbances in the productivity of education captured through the student–teacher ratio in tertiary education show the existence of short- and long-term relationships of the mentioned variable with per capita GDP, as in the DSGE model, the variables perceive convergence to new equilibria. Both models indicate that long-term physical capital and human capital have positive relationships with economic growth.