Human Capital and Economic Growth in Ethiopia
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Date
2006-07
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Addis Ababa University
Abstract
This study investigates the impact of human capital on economic growth in Ethiopia over the
period 1971-2005 using an error-correction methodology. Contrary to microeconomic studies,
the macroeconomic evidence from this study shows that the human capital variable in the form of
schooling has an insignificant impact on the level of output. Various analyses are provided in
this respect. The deteriorating quality of education in the wake of significant expansion in the
sector is an important element that puts into question the basic framework that education
provides students with growth enhancing skills. Schooling might not actually be creating the
required skills or raising worker’s productivity. Besides, in the wake of a stagnant demand for
labor, a rise in the supply of educated labor could only lead to a decline in the returns.
The study also questions the impacts of the economic policy directions and associated
institutional settings, which could have been perverting the contribution to economic growth that
would have been made from an expansion in educational investment. The key economic policy
implication that comes out of this result is that the provision of schooling should be geared
towards achieving broader socio economic goals with special emphasis on quality. Simply
providing more schooling may yield little or nothing in the way of economic growth in the
absence of other elements such as the appropriate market and governmental institutions and
suitable policy environment in the labor market and other sectors of the economy to support a
functioning modern economy. Schooling by itself is not a sufficient engine of growth.
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Economic Growth in Ethiopia