The Impact of Human Capital Development on Economic Growth in Ethiopia
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Date
2023-06
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Addis Ababa University
Abstract
Human capital is one requirement for achieving continuous economic growth. This study examines the relationship between economic growth and human capital development in the Ethiopian scenario from 1991 to 2021. In the meantime, the study analyses the effects on economic growth by dividing human capital into education and health human capital. Additionally, the study applies the Error Correction Model (ECM) and Autoregressive Distributed Lag (ARDL) techniques of co-integration to examine the immediate and long-term effects of human capital development. The outcome indicates the education human capital components namely school enrolment exhibit positive and statistically significant effect on economic growth in both the long run and short run. However, official development assistance and government expenditure on health exhibit negative and statistically significant effect on economic growth of Ethiopia in the long run. In short run, the coefficient of error correction term is -0.86 suggesting about 86 percent of the varation in real GDP is corrected within a year from its equilibrium level. The estimated coefficients of the short-run model indicate that school enrolment(education) is the main contributor to real GDP change followed by official development assistance (one period lagged value) and government expenditure on health But, unlike its long run significant impact, significant short run impact on the economy. Besides, the findings imply that the government and any other relevant entity should pay more attention to the development of human capital stocks by introducing policies that encourage innovation, support education, and provide practical and technological tools to support economic growth