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

Author

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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.

Suggested Citation

  • Chani, Muhammad Irfan & Hassan, Mahboob Ul & Shahid, Muhammad, 2012. "Human capital formation and economic development in Pakistan: an empirical analysis," MPRA Paper 38925, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:38925
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    File URL: https://mpra.ub.uni-muenchen.de/38925/1/MPRA_paper_38925.pdf
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    References listed on IDEAS

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    1. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    2. 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.
    3. Silles, Mary A., 2009. "The causal effect of education on health: Evidence from the United Kingdom," Economics of Education Review, Elsevier, vol. 28(1), pages 122-128, February.
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    Cited by:

    1. Usman Qamar Sheikh & Muhammad Zafar Iqbal & Hafiz Khalil Ahmad, 2016. "The Impact of Foreign Aid, Energy Production and Human Capital on Income Inequality: A Case Study of Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 5(1), pages 1-9, March.

    More about this item

    Keywords

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

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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