The Nexus between Human Capital Investment, Labor Market and Economic Growth in Developing Countries: (In Case of Ethiopia)
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Date
2020-05
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A.A.U
Abstract
This study examined the relationship between Human Capital Investment, Labor market and Economic Growth in Ethiopia. Annual Secondary time series data sourced from CSA, NBE, MOFED and WB covering the period 1981-2018 were used. The study conducted the Johansen Co-integration analysis and Granger causality test. The analysis was based on the impulse response and variance decomposition in VAR and VEC model. The Johansen co-integration result confirmed the existence of long run relationship between human capital investment labor market and economic growth. According to VECM result the increase of human capital investment increase unemployment rate in short run. In the other hand the positive change of unemployment result decline of real GDP in the short run signaling the positive effect of human capital investment on real GDP has decrease by negative effect on labor market. In the long run, population growth positively affects real GDP however real effective interest rate and inflation have a negative effect on real GDP. Based on the variance decomposition result in the long run the variance of real GDP due to the change in unemployment rate is the largest cause of variation in real GDP next to the variation of total investment. The researcher recommended that increasing human capital investment targeted to increase the Economic Growth should be supported by increasing job opportunity and creating supportive well-structured labor market to self-employed and entrepreneur in order to get the targeted effect on real GDP. The supply side of the labor market producing more skill full labor should be supported by the demand side of the labor market by increasing the job creation and develop more comfortable and structural organized environment for the people who went to create their own job (entrepreneur).
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Economic growth, Co-integration, Human capital investment, Labor market