THE ROLE OF HEALTH AND EDUCATION ON

ECONOMICS GROWTH: A CASE STUDY OF PAKISTAN

A DISSERTATION SUBMITTED TO THE DEPARTMENT OF ECONOMICS IN PARTIAL
FULLFILLMENT OF REQUIREMENT FOR THE DEGREE OF MASTER IN
ECONOMICS

BY
MUHAMMAD YOUSOF
REG. NO. MSEC-013R12-19
SESSION 2012-2014

SUPERVISED BY
Dr. Abdul Ghafoor Awan

DEPARTMENT OF ECONOMICS

INSTITUTE OF SOUTHERN PUNJAB,

MULTAN

IN THE NAME OF ALLAH THE GREAT

BENEFICENT THE MOST MERCIFUL

ACKNOWLEDGEMENT

ii

I am very thankful to almighty ALLAH and the Holy Prophet (P.B.U.H) from the core
of my heart on the completion of this academic task.
I am deeply indented to my supervisor Professor Dr. Abdul Ghafoor Awan for his
continued guideline and valuable comments on this study. Through his contribution and
encouragement I was able to accomplish this research work. He preferred me to work on this
topic. I appreciate it.
My appreciation and gratitude also go to the rest of my course lecturers and all others
staff of Economics department of Institute of Southern Punjab and library staff, that they
made my study successful also thanks to all my friends, whom I made during my study period
in university, thanks for all the support and for being good friends.
Very Special thanks go to my beloved Mother & Teachers, who pray for me during
my study and Thanks for all being in touch, telling me how much you all care and supporting
at every stage of problem.
Any error in this research work is mine and should not be associated with any of the
Acknowledged individuals or institution.

Muhammad Yousof

iii

DEDICATED
TO
MY REVERED PARENTS
AND
ALL RESPECTED TEACHERS

DECLARATION

iv

I solemnly declare that this research work is written by me in partial fulfillment for
the degree of M.Sc in Economics and have not submitted in any other university for other
degree. It is written by me and not copied from others. It is free from plagiarism. If the report
found take or copies the ISP has authority to cancel it.

Date: ____________

Muhammad Yousof
ROLL NO. 019
DEPARTMENT OF ECONOMICS
INSTITUTE OF SOUTHERN PUNJAB, MULTAN

Approval

Supervisor
Dr. Abdul Ghafoor Awan

Chairman

External Examiner

ABSTRACT

vi

The thesis investigates the impacts of different health and education indicators on
Economic growth in Pakistan. The Cointegration, Error Correction and Granger
Causality techniques were applied on the time series data of Pakistan for the period of
1972-2006. We find that Per capita GDP is positively influenced by health and
education indicators in the long run and health and education indicators cause the per
capita GDP. However, in the short run the health and education indicators fails to put
significant impact on per capita GDP. It reveals that health and education indicators
have a long run impact on economic growth. It suggests that impact of health and
education are only a long run phenomenon and in the short run there is no significant
relationship exists between health and education variables and economic growth. The
major policy implication of the study is that if we desire a high level of per capita
income, we can achieve it by increasing and improving the stock of health and
education human capital, especially if current stocks are at lower end. Moreover,
study also points out a rather diminutive role of public health and education
expenditure in determining the per capita GDP.

TABLE OF CONTENTS

vii

Chapter 1

INTRODUCTION

01

1.1

Mapping the Relationship between Education and Health

04

1.2

Intragenerational Links

05

1.2.1

Effects of Childhood Health on Educational Outcomes

05

1.2.2

Educational Outcomes in Adulthood

07

1.3

Effect of Life Expectancy on Investment in Education

08

1.4

Effect of Education on Health in Adulthood

09

1.5

Intergenerational Links

10

1.5.1

10

Effect of Parental Education on Child Health

1.6

Parental Health Affects Child Education

11

1.7

Main research Question

15

1.8

Objectives of the Study:

15

1.9

Scope of the study

15

Chapter 2

LITERATURE REVIEW

16

2.1

Scenario of Human Capital in Pakistan:

19

2.2

Education Sector in Pakistan:

23

2.3

EFFECTS OF FEMALE EDUCATION AGGREGATE

24

2.3.1

24

EVIDENCE

2.4

BARRIERS TO FEMALE EDUCATION:

29

2.5

PUBLIC POLICY AND EDUCATION

34

2.6

Summary of Literature Review

39

Chapter 3

RESEARCH METHODOLOGY

41

3.1

Data Type

41

3.2

Data and Sources

41

3.3

Sample

42

viii

3.4

Selected variables

42

3.5

Econometric Model

43

3.6

Statistical Technique

45

Chapter 4
4.1

Order of Integration

Chapter 5
5.1

FINDINGS AND RESULTS

46
46

CONCLUSIONS

52

Recommendation

53

REFERENCE

54

LIST OF TABLE

ix

Table 1: Health Indicator

20

Table 2: Dicke-Fuller/Augmented Dickey-Fuller (ADF)

46

Table-1: ADF Unit Root Test

48

Table-2(a): Co-Integration Test:

48

Table-2(b): Co-Integration Test:

49

Table-3: Error Correction Model

50

Chapter 1

INTRODUCTION

Human capital plays pivotal role for sustainable economic Growth. As different
growth, theories suggest the role of human capital as a significant for growth process.
The concept of human capital in economic literature defined broadly by including
education, health, training, migration, and other investments that enhance an
individuals productivity.
However, the growth economists that have incorporated human capital in the growth
studies; paid greater attention on analysing the impact of education on economic
growth, while ignoring the role of health human capital. It is only in very recent times
that studies have started looking at health and tried to estimate the relationship
between health status and economic growth.
There exists a two-way relationship between improved health and economic growth.
Health and other forms of human and physical capital increases the per capita GDP by
increasing productivity of existing resources coupled with resource accumulation and
technical change. Furthermore, some part of this increased income is spent on
investment in human capital, which results in further per capita growth. According to
Fogel (1994), approximately one third of GDP of Britain between 1790 and 1980 is
the outcome of improvements in health especially improvement in nutrition, public
health, and medical care facilities and these improved health facilities should be
considered as labour enhancing technical change.
On the other hand, Economic development results in improved nutrition, better
sanitation, innovations in medical technologies; all this increases the life expectancy,
reduces the infant mortality rate. World Development report 2007 depicts the situation
is by concluding that Average life expectancy at birth worldwide rose from 51 years to

65 in less than 40 years. Similarly Average life expectancy in developing countries

was only 40 years in 1950 but had increased to 63 years by 1990 (World Bank 1993).
Preston (1976) has analysed various determinants of life expectancy and emphasized
that economic development is the most important factor.
Purpose of this paper is to analyse the long-term relationship between health and per
capita GDP, by using Cointegration and Granger Causality. Long-term analysis of
health and economic growth would be very helpful in determining the possible
magnitudes of fully accumulated effects of health on economic growth. Two main
hypotheses would be tested; firstly, hypothesis that health affects economic growth
is a long run phenomenon would be tested. Secondly, whether, there exists a two-way
causality or causality is unidirectional between health and per capita GDP.
The organization of the paper is as follows: Section 2 reviews some of the previous
studies conducted on the subject of the relationship between economic growth and
health status.
Section 3 describes the status of human capital situation in Pakistan. In Section 4
Econometric Model and data used in the study was discussed which make the
Analytical Framework of the paper. Section 5 discuses the results and main findings
of the analysis and in section 6 the conclusion emerges from the study are highlighted.
In the course of development, few processes are as intertwined with economic growth
as hu-man capital accumulation. Schooling makes workers more productive, speeds
the development of new technologies, and better equips parents to raise skilled
children, all of which promote economic growth.1 Growth, in turn, incentivizes
investment in human capital. Causal links point in every direction, traversing phases
of the lifecycle as well as generations.

The entangled role of human capital is not limited to aggregate income growth,
however. Education exhibits complex dynamic relationships with several components
of wellbeing, including health. For example, education affects health in adulthood;
life expectancy affects educational investment in childhood; and the health and
education of parentsparticularly mothersaffect both outcomes in their children.
Just as with income, these relationships are likely to be especially important in
developing countries, where levels of both schooling and health are low but have risen
rapidly over the past half-century (Becker et al. 2005, Barro and Lee 2011).
This chapter gives an overview of the current state of knowledge on the relationships
linking health and education in developing countries. To emphasize the dynamic
aspects of these relationships, the chapter will trace them out first within a generation,
between childhood and adulthood, and then across generations, from parents to
children. It will focus on reduced-form evidence of these effects rather than efforts to
precisely pin down mechanisms, for two reasons. First, the existing literature
especially that on developing countrieshas simply generated more evidence on
these reduced-form relationships. Mechanisms have received some attention (see, e.g.,
Cutler and Lleras-Muney 2010), but the evidence comes primarily from wealthy
countries, and even that evidence remains sparse.
Second, the reduced-form evidence on dynamic links casts in stark relief the potential
joint role of education and health in accounting for the intergenerational persistence of
disad-vantage.2 That is to say, the children of unhealthy and uneducated parents grow
up to be un-healthy and uneducated parents themselves. Others have proposed similar
arguments about the intergenerational dynamics of the relationship between health
and socioeconomic status, more broadly construed (Cutler et al. 2011, Currie and Vogl
forthcoming). But the links between education and health, which typically lie at the

crux of these arguments, can by themselves account for the dynamics. Given the
current extent of inequalities in income, human capital, and health in developing
countries, the links between education and health may prove important in shaping
long-term trends in the levels and distributions of both variables.
Associations between health and education are not new, but with such tangled causal
pathways, these associations sometimes prove to be uninformative.3 The recent
literature in economics has made its main contribution in causal inference. Analyses
of natural experiments and prospective trials have shed new light on long-standing
hypotheses. They have also improved our ability to interpret careful associational
studies, which are in many cases more generalizable than experimental studies but
less internally valid. These advances have been key to identifying both the direction
and the timing of effects in the causal system linking education and health. With this
better understanding of what matters and when, policymakers will be better equipped
to identify opportunities for well-targeted policies.
1.1

Mapping the Relationship between Education and Health

With its numerous pathways, the causal system linking education and health may
seem convo-luted. However, one can represent it in a simple but informative diagram.
Figure 1 traces out the links between education and health, first over the lifecycle and
then across generations. Each arrow represents a causal link that has empirical support
in the literature. The solid lines signify intragenerational linksin other words, causal
links that operate within a single personwhile the dashed lines correspond to links
that work across generations within a family.
The system lays out a roadmap for the rest of the chapter. In childhood, good
health im-proves educational outcomes. Additionally, the expectation of good adult
health increases schooling investments in childhood. Both health and education

persist from childhood to adulthood, at which point education boosts health. But
adults are also parents, so their circum-stance in middle age spills over onto the next
generation. Healthier mothers have healthier children and more educated children.
Conversely, parental education promotes both the health and the education of the next
generation. At this stage, the causal system repeats in the next generation. In the
remainder of the paper, I will focus on the subset of the arrows in Figure 1 that
connect health and education.
1.2

Intragenerational Links

1.2.1

Effects of Childhood Health on Educational Outcomes

Educational Outcomes in Childhood

We begin in childhood, where abundant evidence suggests that health affects
school enrollment and academic achievement. Health enables children to travel to
school, concentrate, and think clearly, all of which may improve educational
outcomes. Until recently, the evidence has pri-marily taken the form of cross-sectional
associations between childrens health and their educa-tional outcomes. Behrman
(1996) surveys several such studies from the 1980s and 1990s, which show strong
positive relationships between anthropometric measures of child healthsuch as
heightand schooling outcomes in a wide range of settings.4 But Behrman ultimately
critiques these studies for inadequately addressing issues of causality and omitted
variables.
A few analyses published at the same time or after Behrmans critique make some
headway on these issues by focusing on within-family variation. Analyzing data from
Ghana, Glewwe and Jacoby (1995) estimate models with family fixed effects, finding
that shorter sib-lings start school later than their taller brothers and sisters. More
recently, Bharadwaj et al. (2010) analyze twin pairs and sibling sets in Chile, showing

that twins or siblings born at higher birth weight perform better on exams. Withinfamily comparisons of this type eliminate con-cerns about family-level omitted
variables, although they leave some concern about how par-ents allocate scarce
resources among children with observably different health.
Analyses

of

natural

experiments

in

disease

eradication,

micronutrient

supplementation, and health care provision have also made progress on causal
identification.5 Bleakley (2007), investigating the eradication of hookworm from the
U.S. South in the early 20th century, shows that areas with higher initial hookworm
burdens saw larger declines in worm infection and larger increases in school
enrollment. Using more recent data, Field et al. (2009) study a mater-nal iodine
supplementation program in Tanzania, which the government introduced in differ-ent
parts of the country at different times. Drawing on policy variation across time and
space, as well as on sibling differences in program exposure, they find that in utero
exposure to the pro-gram increased school participation. Data from Latin America
also shed light on the test score impacts of early-life health. Bharadwaj et al.
(forthcoming) take advantage of the fact that infants born just below the threshold for
very low birth weight (VLBW) receive much more care than those born just above.
Using data from Chile (and Norway), they document discontinuities around the
VLBW threshold in both infant mortality rates and subsequent test scores, such that
infants born below the threshold do better.
In addition to these innovative ways to glean causal effects from observational data,
the past decade has seen a series of randomized controlled trials testing the effect of
child health on schooling outcomes. Perhaps the best known is a deworming
experiment in Busia district, Kenya. Intestinal worms cause anemia and other
ailments, which may make children too weak or lethargic to study. To study the

effects of worms on schooling outcomes, Miguel and Kremer (2004) experimentally

varied access to deworming medications across 75 primary schools in the district.
Pupils in treatment schools exhibited significantly lower rates of worm infection, anemia, and school absence, but not test scores. Experimental data from other settings
provide corroborating evidence. In a study of Delhi preschool children, Bobonis et al.
(2006) randomized access to iron supplements and deworming medicines across 200
preschools, finding increases in childrens weight and school attendance. Attendance
effects also emerge in Vermeersch and Kremers (2004) evaluation of a Kenyan
preschool protein supplementation program.
1.2.2

Educational Outcomes in Adulthood

The fact that education is relatively fixed by adulthood facilitates the study of its
relationship with health. Coupled with retrospective measures of child health, data on
adult educational attainment can shed light on the effect of health on education in
childhood. For example, just as height and schooling outcomes are associated in
children, so too are they related in adults. Adult height positively predicts educational
attainment in nationally representative data from Mexico (Vogl 2012), as well as in
data on urban populations in Barbados, Mexico, Cuba, Uru-guay, Chile, and Brazil
(Maurer 2010).
In adulthood, too, the results of natural experiments and randomized controlled
trials suggest that the associations partly represent an effect of health on education.
One noteworthy finding comes from long-term follow-up of Miguel and Kremers
(2004) deworming experiment in Kenya. In young adulthood, individuals in the
treatment group had stayed enrolled in school longer and performed better on a
battery of tests than their counterparts in the control group (Baird et al. 2011). On the
other hand, long-term follow-up of Bleakleys (2007) study of hook-worm in the U.S.

South gives different results. To modify his research design to study outcomes in
adulthood, Bleakley compares birth cohorts born too early to be exposed to
eradication to those born later, across areas with differing baseline worm infection
prevalence. The results imply significantly positive effects on literacy but not years of
schooling.
Several papers have used a similar strategy to estimate the long-term effects of
malaria eradication on human capital, with mixed but on net positive results. Bleakley
(2010) draws on data from the U.S. South, Brazil, Colombia, and Mexico. Here again,
he finds significant effects on literacy but not years of schooling, which he interprets
as evidence that eradication makes children more productive as students and as child
laborers.6 Cutler et al. (2010), applying the same research design to India, recover no
evidence of positive effects on either literacy or years of schooling. On the other hand,
Lucas (2010) finds positive effects of malaria eradication on both outcomes in
Paraguayan and Sri Lankan women.
1.3

Effect of Life Expectancy on Investment in Education

Unlike the effect of child health on education, which is rooted in the

technology of skill for-mation, the effect of life expectancy on human capital

investment is at its core about optimizing choices by households and individuals.
According to the standard reasoning, if an individual expects a longer time horizon to
reap the returns to human capital, then that individual will invest more. Analyses of
macroeconomic data offer limited support for this hypothesis. Alt-hough adult
mortality is negatively associated with secondary school enrollment, Lorentzen et al.
(2008) find that the relationship is not robust to the inclusion of covariates. However,
given the paucity of high-quality data on adult mortality in most countries and the

difficulty of as-sessing causality from cross-country associations, the macroeconomic

patterns are suggestive.
Indeed, two microeconomic analyses have yielded convincing evidence that
reductions in adult mortality risk increase human capital investment. First,
Jayachandran and Lleras-Muney (2009) use the near-elimination of maternal mortality
in Sri Lanka as a natural experi-ment in adult mortality. Parts of the country with
higher baseline maternal mortality rates (and therefore larger subsequent declines in
maternal mortality) saw larger increases in female educational attainment. Second,
using data from Africa, Fortson (2011) shows that subnational regions that were
hardest hit by the HIV/AIDS epidemic have also experienced the largest declines in
education since the start of the epidemic.
1.4

Effect of Education on Health in Adulthood

A long-standing literature reports positive associations between education and health

in adults in wealthy countries. As Cutler and Lleras-Muney (2008) note in their survey
chapter on the topic, the mechanisms linking the two variables are not fully known.
To the extent that the association reflects an effect of education on health, important
mediators of this effect may include income, working conditions, health-related
knowledge, cognitive ability, patience, attitudes towards risk, and cultural capital
(especially in interactions with health providers). Similar associations are evident in
data from developing countries, although studies are rarer.
Both natural experiments and prospective trials suggest that while education can
affect health, such effects may depend on characteristics of the population and the
material being taught in school. Several studies use compulsory schooling laws in the
U.S. and Europe as instruments for education, with mixed but mildly positive results;
some indicate positive effects on health and longevity, while others indicate no effect.

Unfortunately, no similar studies exist on developing countries.

However, longitudinal follow-up of the recent spate of education-related randomized
controlled trials in developing countries has begun to yield useful results on health
behavior in young adulthood. In one study, Jensen and Lleras-Muney (2012) analyze a
program in the Dominican Republic that gave teenage boys information about the
return to schooling. The information led the boys to stay in school longer, to delay the
onset of heavy drinking, and to reduce smoking at age 18. Across the Atlantic in
Africa, Bandiera et al. (2012) estimate the effects of a program that sought to provide
adolescent girls with both vocational training and information about risky health
behaviors. HIV-related knowledge and condom use both in-creased. Less promising
results have emerged from a Kenyan study on the medium-run impacts of a school
subsidy program (Duflo et al. 2012). Although the program increased schooling for
both boys and girls, follow-up data show at best weak impacts on sexual behavior and
STD infection. Together, these studies suggest that keeping boys off the streets and
equipping girls with health information may be key to any effect of education on
health in young adulthood.
1.5

Intergenerational Links

1.5.1

Effect of Parental Education on Child Health

In the context of poor countries, by far the most widely studied education-health
association is that between maternal education and child health. Following Caldwells
(1979) canonical study of child mortality in Nigeria, a large literature has emerged on
this topic. The literature bares widespread correlations between maternal education
and child health, measured by illness, anthropometry, or death.
Based on data on Brazilian childrens heights, Thomas et al. (1991) argue that
educated womens access to information explains much of the correlation.

10

On the other hand, several studies question the extent to which the correlation reflects
a causal effect running from maternal education to child health, as opposed to omitted
variables. Desai and Alva (1998) show that the relationship is not always robust to the
inclusion of socio-economic and community-level covariates. Wolfe and Behrman
(1987) and Strauss (1990) find that it weakens upon the inclusion of a fixed effect for
the mothers sibship or for a multifamily household. However, one could interpret
many of Desai and Alvas covariates as mediators of the relationship rather than
confounders, and the inclusion of fixed effects exacerbates problems related to
measurement error. The results of the revisionist literature are therefore inconclusive.
Analyses of natural experiments support a causal interpretation. The most compelling
evidence comes from the United States, where Currie and Moretti (2003) demonstrate
that local college openings improve birth weight and gestational age.10 But some
results are also available for developing countries. Among Indonesian women, for
example, exposure to a school con-struction program reduced mortality rates among
their children (Duflo and Breierova 2004).11
1.6

Parental Health Affects Child Education

Parental health also affects childrens schooling outcomes. Two mechanisms stand out
in the literature. The first is indirect: healthier mothers have healthier children, who in
turn become better-educated adults (Almond and Currie 2011).
12 For instance, in utero exposure to the 1918 influenza epidemic decreased
educational attainment for the cohort born in 1919 in the United States (Almond
2006), Brazil (Nelson 2010), and Taiwan (Lin and Liu 2011).13 This effect im-plies
that a mothers health is key to the skill development of her child.
The literature also highlights a second mechanism through which parental health
affects child education: parental death. Good evidence comes from the HIV/AIDS

11

epidemic, which has orphaned more than 15 million children (UNAIDS 2010), some
90 percent of them in Africa. Across Africa, orphans have lower school enrollment
rates than the biological children of their caretakers (Case et al. 2004). Furthermore,
in South Africa (Case and Ardington 2006) and Kenya (Evans and Miguel 2007), the
timing of parental death is associated with the timing of school dropout. The same is
true in Indonesia (Gertler et al. 2004), where parental deaths typi-cally have little to
do to HIV/AIDS. One can thus view the African results as representing a more
general effect of losing a parent. Nevertheless, given the scope of the continents
orphan crisis, the results are most relevant there.
In an era when intellectual capital is increasingly prized, both for individuals and
nations, higher education has become vitally important. Higher education can produce
critical thinkers and innovators, as well as healthy, informed and engaged citizens.
Higher education maintains social mobility and a high standard of living. Higher
education can combat current public policy challenges including democratic renewal
and health care. Moreover, worlds higher education institutions and universities have
driven research that has battled previously incurable diseases, and provided the
facilities for innovative business ideas and political theories that have shaped the
fortunes of cities, regions and even nations. So, Pakistans high economic growth and
access to new technologies is also associated with higher education. The
governments commitment to education was declared at the National Educational
Conference (NEC) in 1947. It was the first step towards defining education policies
and goals in Pakistan. There have been eight national education polices during the
last 58 years of Pakistan and a number of commissions and committees have been set
up by different governments attempting to make various changes in Pakistans
educational scenario [Khalid and Fayyaz (2006)]. However, the history of education

12

policymaking and planning shows that each round of policymaking repeats the same
pattern, the importance of education is iterated, the failure of past efforts is lamented,
the main issues in education reform are highlighted and new plans are proposed to
meet new targets. Yet the targets have remained elusive up to now. Education is
universally acknowledged a primary tool to promote economic development. It plays
a fundamental part in developing human capital and escalates economic growth by
improving skills, increasing competency, and productivity. The education brings
benefits for the whole society and the individuals. For developing country like
Pakistan, education plays a key role in poverty reduction, and removing both social
and income inequalities. This study focuses on the question that, "whether
improvement in education sector brings improvement in economic growth in
Pakistan. Generally, it can be said that education does effect the economic
development because it is considered as one major factor of improving human capital.
Practically, there is difference among researchers as to whether the education have
positive or negative relation with economic growth, or in some cases the studies
indicates no impart of education expenditure on economic growth. Barro (1991) finds
a positive relationship between education expenditures and economic growth. De
Meulmester and Rochet (1995) concludes that the relationship is not always positive
between education and economic growth. Benhabib and Spiegel, (1994) acknowledge
the human capital development as a source of economic growth. Gemmell (1996)
determine that, both human capital and their growth rates as main determinants of
economic growth. Rodriguez and Rodrik (1999) point out that normally the
instruments used to determine the relationship are not suitable. According to Bils and
Klenow, (2000), "Countries having high rate of enrollment in schools made faster
growth in per capita income because high enrollment rate causes rapid improvement

13

in productivity". Hanushek and Kimko (2000) show that quality of education have a
remarkable impact on productivity and national growth rates. Education can play its
role in economic growth and benefit the society and individual as well. For individual
education increases employment opportunities and higher income and improved life
quality. The objective of this study is to determine the relationship between education
expenditure and economic growth in Pakistan. Education is generally considered as a
powerful tool in reducing poverty, enhancing economic growth, empowering people,
improving private earnings, promoting a flexible and healthy environment and
creating competitive economy. It plays a vital role in shaping the way in which future
generations learn to cope with the complexities of economic growth. Educational
institutions prepare the citizens to be able to participate actively in all walks of life
including economic activities. Human capital has proved itself to be one of the most
important determinants of sustainable economic growth and hence development. The
positive and significant contribution of human capital through education development
is being well recognized. Most of the studies on education and productivity witness
their significant positive correlation (Lockheed, Jamison and Lan, 1980). High drop
out from school causes a decline in human capital which ultimately hampers
development and economic growth (Seebens and Wobst, 2003). Education has
multidimensional impacts on the economy. On one side, it influences economic
growth positively and on the other, it reduces poverty and creates such a social and
political environment that attracts investment. It makes workers more productive,
more polite and promotes reasonable socio economic policies. Education development
plays a vital role not only in economic development but in the overall development
process of the nation also. The role of education in building the efficient and effective
labour force is well recognized. McMahon (1998), using cross country panel data for

14

East Asia and measuring human capital by gross enrollment rates, found that
secondary and higher education expenditures were more significant inenhancing
enrollments.

1.7

Main research Question

Our main research question is studying the role of health and education on

economic growth: A case study of Pakistan.

1.8

Objectives of the Study:

This study aims:

To examine the relationship between economic growth and education and

health development with inclusion of some other macroeconomic variables
such as physical capital, poverty and inflation.

To evaluate empirically SR and LR effect of education and health on

economic growth in Pakistan.

1.9

Scope of the study

In recent years, Pakistan has faced severe macroeconomic imbalances,

declining economic growth, rising poverty, and poor social indicators like education
and health. Health and education indicator cause the per capita GDP. However, in the
short run as well long run health and education indicators succeed to put significant
impact on per capita GDP.

Chapter 2

LITERATURE REVIEW

15

As mentioned in introduction that numerous studies were conducted on the

relationship between human capital development and economic growth. The main
conclusion of these studies is that there exists a positive relationship between human
capital and economic growth.1 It is only last decade that there is a flurry of studies
exploring the relationship between health and economic growth.
By using the adult survival rate as an indicator of health status, Bhargava et al (2001)
finds positive relationship between adult survival rate and economic growth. Results
remains similar when adult survival rate is replaced by life expectancy. However,
fertility rate have a negative relationship with economic growth. Because, life
expectancy is extremely influenced by the child mortality. Growth in workforce is
mostly lower than population growth. Resultantly high fertility rate reduce the
economic growth by putting extra burden on scare resources.
Mayer (2001) also uses the probability of adult survival by gender and age group as a
measure of health status. By using Granger-type, causality test study concludes that
health status causes economic growth in Latin America generally, and specifically in
Brazil and Mexico. Improvements in adult health are associated with 0.81.5%
increase in annual income. Moreover, the growth impact is higher for improvements
in health of female compared with health of male.
Bloom et al (2004) by using 2SLS technique finds that life expectancy and schooling
have a positive and significant effect on GDP. Improvements in health increase the
output not only through labour productivity, but also through the Capital
accumulation. Study also finds that improvement of one year in a populations life
expectancy resulted into an increase of 4% in output.
By using the average height adult survival rate and life expectancy as an indicator of
health status Weil (2001) finds that health is an important determinant of income

16

variations in different countries. Approximately 17-20 % of the cross-country

variation in income can be explained by cross-country differences in status of health.
Arora (2001) uses the life expectancy at birth, at ages five, ten, fifteen, or twenty, and
structure of adulthood as health indicators for 10 industrial countries. Study concludes
that improvement in health status has increased the pace of long-term economic
growth by 30-40 %. It also concludes that high rate of disease prevalence and deaths
are among the main reasons for poor long-term growth in developing countries.
Lorentzen et al (2005) analysis the impacts of adult mortality rate on economic
growth. Study finds that high mortality rate reduce the economic growth by curtailing
the time horizon. Resultantly people take actions that yield short-term benefits at the
long-term cost. Study also concludes that fertility, investment in physical and human
Capital, are the channels b adult mortality rate affects economic growth.
Measuring health status by health status by infant mortality rate, life expectancy rate
and crude health rate and per capita GNI as indicator of economic growth; Malik
(2006) finds that if OLS is used then there is no significant relationship between
health status and economic growth. However, when 2SLS is used then study finds
highly significant effect of health indicators on economic growth.
Scheffler (2004) argues that health may not be treated as output (life expectancy, adult
survival rate etc.) but it needs to be treated as input (health expenditure). Study finds
that elasticity of health care spending with respect to GDP is greater than one. This
means that if GDP increases by 10 percent then healthcare spending goes up by more
than 10 percent.
Consequently, developed countries spend more on health as compared to developing
countries.

17

Tallinn (2006) uses adult mortality rate, fertility rate and life expectancy to analyse
the economic costs of ill health along with economic benefits from improving it for
Estonia.
Study finds that fertility rate and adult mortality rate have a significant and negative
impact in both OLS and Fixed effect model specification. Moreover By using survey
data Study also concludes that ill health has a statistically robust and negative impact
on labour supply and productivity at the individual level.
Zon (2001) concludes that good health is a necessary condition for people to be able
to provide labour services. Study finds that an increase in the demand for health
services caused by an ageing population will negatively affect the economic growth.
Gyimah-Brempong (2004) finds that investment (health expenditure) and stock (child
mortality rate) of health human capital have a positive and significant relationship
with growth of per capita income. However, the relationship is quadratic. Study
concludes that investment in health in LDCs will boost the economic growth in the
short run and increases the level of income in the long run because investment in
health become a part of Stock of human capital.
While analysing the contribution of health by measuring it by the survival rate of
males between age 15 and age 60 in economic growth, Jamison (2003) finds that
better health accounted for about 11% of growth. Study concludes that investment in
physical capital, education and health plays critical role in boosting the economic
growth.
By using different household survey indicators of adult nutrition and health, Schultz
(2005) examines the impact of health on total factor productivity. Study finds that
better health human capital have a significant and positive impact on wages and
workers productivity. Study finds the developing countries often lack the resources for

18

investment in health; on the other hand poor health status slows down the economic
growth. Developing countries seems to be in a vicious cycle resulting in persistent
underdevelopment.
By using data of mortality rate Fogel (1994) concludes that approximately one third
of income growth in Britain during 1790-1980 may credited to improvements in
health facilities and better nutrition. Study also concludes that public health and
medical care must be recognised as labour-enhancing technological change.
While taking into account initial poverty, economic policy, tropical location, and life
expectancy Gallup and Sachs (2000) find that per capita GDP of the countries having
intensive prevalence of malaria grew 1.3% less compared with other countries. Study
also concludes that a 10% reduction in malaria incidence would result in 0.3
percentage increase in the growth rate of per capita GDP.
Sachs and Warner (1997)by using life expectancy as indicator of health s finds a
quadratic relationship between health human capital and the rate of economic growth.
Study concludes that health human capital increases economic growth at a decreasing
rate.
2.1

Scenario of Human Capital in Pakistan:

Pakistan have been facing financial crunch throughout its entire history. This scarcity
of resources has bound Pakistan to spend limited resources on Development. Low
Revenues coupled with rising defence and debt servicing expenditure government
mostly have very little cushion available to spend on development especially on
human capital. Development expenditure was on average 7.4% of GDP during 197377. It squeezed to 2.3 % of GDP in the FY 2000-01, however thereafter situation
improves and in FY 2006-07 these become 4.5% of GDP. Resultantly, Human Capital

19

shows a dismal picture. . On the human poverty index, Pakistan ranked 77th among
108 countries and 136th among 177 countries on the human development index.
The healthcare facilities in Pakistan present a very disappointing scenario. It is the
outcome of extremely low expenditure on health over the last 60 years. Health
expenditure in Pakistan remains at low band of 0.5-0.8 % of GNP during 1970-2007.
In FY 2006-07health expenditure was only 0.6% of GNP, which was very low
comparing with other developing countries. Not only the health expenditures are low
but also delivery of available healthcare facilities is also inefficient. Moreover,
primary healthcare and rural health services were ignored and the priority was given
to hospitals, medical colleges and curative services in the urban areas. In Pakistan,
infant mortality rate was high at 77 per thousand live births; life expectancy was low
at 65 years in 2006. Comparing the indicators in 2000, 85 per thousand live births and
life expectancy of 62 years, there is improvement in health indicators but pace is
rather slow. Trend in the health indicators over the years, summarized in table below:

Education sector also shows the same situation. Public expenditure on education was
on average 0.8% of GNP in 1980s, 2.3 % of GNP in 1990s, lowest in FY 2004-05 of
only 1% of GNP and 2.4 % in FY 2006-07, that is much lower than other low income
countries of the region. Moreover as in the case of health expenditure, most of

20

spending on education goes largely to the recurring expenditure. Historically, priority

was given to the higher education, whereas primary education was ignored. As a
result, literacy rate was just 55 percent and gross primary enrolment rate was 87
percent in 2006. Pakistans health and education indicators represent a depressing
picture when it is compared with the countries with same level of development such
as India, Bangladesh, China and Sri Lanka. There is a dire need to increase the
expenditure on health and education.
The early work of Solow (1956, 1957) showed that economic growth could
not only be explained by capital and labor increase. His aim was to determine the
contributions of the factors of production (capital and labor) and the increase in
technical progress to the growth rate as a whole. Later on, the endogenous growth
model was developed by Lucas (1988), which considered human capital as one of the
factor of production and education as a means of human capital accumulation.
According to Lucas (1988), education was a vehicle for human capital accumulation
and was treated as a factor of production besides labor and physical capital. This
implies that progress in the educational attainments of the labor force has a positive
impact on productivity that leads to better economic performance at aggregate level.
It is commonly considered that the main objective of education is to develop human
capital. However, education alone does not necessarily develop this type of capital. It
is also developed by other social activities and actions that can contribute to the
accumulation process. According to Fogel (1994), in addition to general education
(schooling and training), better health, physical strength, nutrition and occupational
training contribute to the level of accumulated human capital. A great deal of literature
on growth stemming from the work of Barro (1991, 2001) has paid attention on some
measure of human capital as a determinant of economic growth. Barro (1991) verified

21

that in the period 19601985 the growth rate in a sample of 98 countries depends
positively on the initial level of human capital measured by schooling rates and
negatively on the initial level of per capita GNP. Mankiw et al (1992) extended
Solows model by introducing the accumulation of human capital measured by
education levels and found that contribution of human capital is significant. Barro and
Lee (1993) have studied the rate of schooling success in the adult population at
various levels (primary education, secondary education, higher education) from 1960
to 1985 in 129 countries and concluded that levels of education have significant
explanatory capacity. Education has direct positive relationship with the growth rate
of GNP. In contrast, Benhabib and Spiegel (1994) maintain that the growth rate of
human capital measured by the number of years of education of the working
population does not significantly explain the growth rates of per capita output.
However, human capital levels play a substantial role as determinants of increase in
per capita income. Bils and Klenow (2000) argued that in any case, a significant
positive correlation between education and output growth does not imply that
education affects growth. Instead, both education and output growth could be driven
by an omitted variable, total-factor-productivity growth for example. Bils and Klenow
(2000) are not alone. Pritchett (2001) also showed that variation in the change in
average schooling plays little role in explaining cross-country variation in growth
rates. In contrast Gemmell (1996) found both the levels of human capital and their
growth rates to be important in explaining growth. Benhabib and Spiegel (1994)
investigated whether education influences rates of technological progress and Temple
(1999) showed that their inability to produce a significant coefficient on human
capital may be due to the influence of outliers. Temple (2001) revisited the data and
for two of his empirical investigations concluded that it is hard to reject the Pritchett

22

(2001)s view that large investments in education have yielded a very small pay-off in
developing countries.

2.2

Education Sector in Pakistan:

Education is the key issue to improve living standards and to reduce social and

income inequality. Different Governments in Pakistan have taken numerous steps to

improve the quality of education. According to the Education Statistics of 2008-9
Shows that literacy rate was high in urban areas (74%) then the rural areas (48%).
Literacy rate in men are more the women's, as for men (69%) compared to women
(45%). Province wise literacy rate indicates, "Literacy rate in Punjab is (59 %), Sindh,
(59%), Khyber Pakhtunkhwa (50%) and Balochistan at (45%)". Total adult literacy
rate show the figure of 57%. PrePrimary Education is a vital element of Early
Childhood Education. An increase of 2.2% enrolment rate is estimated for the year
2009-2010. 156, 653 Primary Schools with 465,334 Teaching staff are functioning in
Pakistan. An increase of 0.6 % in Primary enrolment (18.468 million) in 2009
compare to (18.360 million) in 2008. Statistics indicates that, 24,322 Secondary
Schools with 439,316 Teaching staff are functioning in Pakistan. Moreover, the
enrolment rate of 2.9 % (2.556 million) is observed in 2009-2010.
The enrolment rate of (948,364) is observed in 2009-10 in Higher Education. Four
new universities are formed to boost and promote the higher education in Pakistan.
Currently a total number to 132 universities with 50,825 Teachers in both Private and
Public Sectors are working in Pakistan.
Pakistan is blessed with naturally talented individuals, but due to worse law
and order, very low employment opportunities, and insufficient research activities, a
number of professionals are leaving Pakistan for the sake of better career and life. To

23

tackle this problem of brain drain, during last few years governments have taken
numerous steps to promote research activities and improve the quality of facilities in
education institutes. Many scholarships programmes have been offered throughout the
year for higher education, including ingenious scholarship, special scholarship
programme for the students of Fata and Balochistan. At present 3,237 students are
studying in HEC recognised universities. HEC has sent about 2,600 students for
studies abroad under different foreign scholarship programmes. In order to improve
and promote research activities, 20 Research Laboratories have been established in
major universities.
2.3

EFFECTS OF FEMALE EDUCATION - AGGREGATE

2.3.1

EVIDENCE
There is a rapidly expanding literature which analyzes the importance of

education overall for economic growth.4 Yet only recently has this work at the
aggregate level begun to consider the differential effects that male and female
education may have. After accounting for intercountry differences in GDP (or GDP
per capita), countries with higher levels of women's education experience more rapid
economic growth, longer life , lower population growth, and improved quality of life.
Several recent papers have affirmed the importance of incorporating female education
in cross-country analysis of economic growth. Using data on ninety-six countries
from 1960 to 1985, Aaron Benavot (1989) found that increases in female primary
enrollment ratios have larger effects than male ratios on economic growth, especially
in African and Latin American countries. Surjit Bhalla and Indermit Gill (1992)
estimated equations for infant mortality and secondary school enrollment both in
levels and their rates of growth and included either the total educational stock or the
educational stock of women as explanatory variables (along with private income and

24

public expenditures on health and education). They reported women's schooling to be

one of the most important determinants of both health and school enrollment levels.
Robert Barro and Jong-wha Lee (1993) included education stock measures for both
males and females as explanatory variables in equations estimating growth rates in
real per capita GDP, fertility, and secondary and tertiary school enrollment ratios.
They found positive effects of female schooling in GDP growth rate but their results
indicated that the beneficial effect of female schooling works primarily through
fertility reduction. However, only female schooling had the expected statistically
significant effects on fertility and overall secondary and tertiary school enrollment
ratios.Gill and Bhalla (1992) estimated annual income growth equations for 1960 to
1987, relating the annual rate of GDP growth to changes in the stock of education,
arable land, capital and labor, as well as to initial 1960 levels of female education,
male education, and per capita income. The results produced the same empirical
puzzle that motivated our research summarized below. Specifically, in models that
included both male and female education, the 1960 level of male education bore an
unexpected negative effect. A country with the same level of female education as
another, but a higher level of male education in 1960 experienced slower economic
growth during the subsequent period. What mechanisms could underlie these
differential effects of male and female education? One possible explanation is that
since the correlation between the aggregate levels of male and female education is
quite high (at about 0.9), once female education is held constant, increases in male
education represent a rising gender disparity in educational attainment. It is not likely
to be male education itself but rather a gender disparity in education which diminishes
a country's prospects for economic growth. In order to explore the effects of the
gender gap in education on a country's level of economic and social development, we

25

relate GNP and indicators of social well-being to determinants that include measures
of the level of education as well as the gender gap in education. We first estimate an
equation for GNP, the determinants of which are modeled within a production
function framework (see Laurence Lau, Dean Jamison, and Frederic Louat 1991).5
However, GNP may be measured only partially, since most accounting ignores the
value of home production or production in the nonmonetized (or informal) sector.6
We consider also the social indicators of male and female life expectancy, infant
mortality rate, and total fertility rate. We relate each social indicator to predicted GNP
and to the level of female education and the gender gap in education.7 Thus we
estimate two recursive equations for each social indicator considered.8 Table 2
provides the descriptive statistics for the data used. The level of female education is
measured by gross enrollment rates in primary and secondary education. While there
are shortcomings to using gross enrollment rates to measure the level of female
education, these variables are both commonly used and widely available. To represent
the potential educational attainment of the current population rather than current
investments in education, enrollment rates lagged by ten years for primary education
and by five years for secondary education are used.9 It is hypothesized that the
education gap between men and women has an effect on social indicators which is
independent of the effect of women's education level.'0 A measure of gender disparity
in primary enrollments is combined with a measure for secondary enrollments to yield
a single index of gender disparity in education. This gender gap is defined as the ratio
of female-to-male enrollment at the primary or secondary level, whichever ratio is
smaller (that is, whichever gender gap is larger). For example, if a country has nearly
universal primary enrollment for both males and females but there exists a gender
disparity at the secondary level, it is the female-to-male enrollment ratio at the

26

secondary level which measures the gender gap. Alternatively if there is relative
equality at the secondary level (perhaps attained only by a country's elite) and wide
gender disparity at the primary level, the latter measure is operative. We rank
countries by the size of the gender gap and specify four categories with roughly the
same number of countries: the first includes countries with female-to-male enrollment
ratios of less than 0.42; the second, those with ratios between 0.42 and 0.75; the third,
countries with ratios between 0.75 and 0.95; and the fourth, those at or near parity,
with ratios greater than 0.95. Table 3 presents the results from estimating the GNP
model. The findings are consistent with others in that the level of education is found
to have a strong positive effect on GNP. (See especially, Lau, Jamison, and Louat,
1991.) The GNP estimation also includes indicators for the gender disparity in
education. For given levels of female education, the size of a country's labor force and
its capital stock, those countries in which the ratio of female-to-male enrollments is
less than 0.75 can expect levels of GNP that are roughly 25 percent lower than in
countries which are otherwise similar apart from the level of gender disparity in
education. That is, large gender disparities in educational attainment are associated
with lower levels of GNP. The results in Table 4 indicate that both the level of female
enrollments and the gender disparity in enrollments influence social well-being, even
after accounting for intercountry differences in GNP. Higher levels of primary and
secondary enrollments are associated with longer life expectancy (with comparable
benefits experienced by men and women), lower infant mortality, and lower total
fertility rates. These coefficients represent the net effect of the education variables on
the social indicators, and can be interpreted as follows. After taking into account the
effects of GNP and other factors likely to be associated with infant mortality, an
increase in the female primary enrollment rate by 10 percentage points can be

27

expected to reduce the infant mortality rate by 4.1 deaths per 1000 live births. If
female secondary enrollment rises by the same amount, an additional reduction of 5.6
deaths per 1000 live births would be experienced. These results further demonstrate
that even after accounting for the effects of GNP per capita and the levels of female
enrollments, gender disparity in education can reduce social well-being. Consider first
male life expectancy. Men living in those countries in which the female/male
enrollment ratio is less than 0.42 would experience reductions of nearly four years in
their average life expectancy relative to men in those countries that were otherwise
similar apart from having greater gender equality in schooling. Similarly striking
results hold for each social indicator. As countries approach gender equality in
enrollments, the detrimental effect of the differential diminishes, with gender
disparities of between 0.75 and 0.96 imparting effects which are negative but not
statistically significant. One important conclusion from this analysis is that the level
of female education and the gender gap in education are each important determinants
of social well-being and economic growth. The benefits play out in the aggregate, but
we must turn back to the household to understand why the gender gap matters. A
gender education gap dictates the relative earnings potential of husband and wife and,
thus, the division of labor between them. A husband who is more highly educated than
his wife is likely to command a higher wage in the labor market. As a result, the
husband and wife will tend to specialize, increasing the husband's hours of work in
the market at the expense of his home work and the wife's home activities at the
expense of her market work (see, for example, Elizabeth King and Robert Evenson
1983). But while the family can benefit from the returns to her husband's education
through his income transfers, it cannot benefit as easily from the nonmonetary returns
to education such as his enhanced skills and technical knowledge. Income may only

28

partly substitute for the mother's lack of skills. As outlined in the preceding section,
the mother's level of education often has a more powerful effect than does income or
father's education on indicators of family well-being. If mothers and fathers have
different preferences with respect to decisions within the family and also have
separate sources of income, the degree of participation in these decisions by mothers
(the extent of bargaining power and relative resources) mayinfluence the level of
resources provided for the health and education of children. Less control by women
over their own reproductive outcomes and over the allocation of resources for child
care could mean higher fertility, and consequently poorer health status and lower
schooling of children, regardless of the total level of family resources. Amartya Sen
(1984) illuminates the potential for conflict that men and women may have in
distribution of family resources. See also work by Marilyn Manser and Murray Brown
(1980); Marjorie McElroy and Mary Jean Homey (1981); Nancy Folbre (1986); and
Shelly Lundberg and Robert Pollak (1991). Given the significant benefits to educating
women, the persistent gender gap in education provides evidence that the costs of
educating women are also high. Culture, institutions, and the level of economic
development jointly give rise to barriers to education for women in countries around
the world. Despite clear regional differences in cultures and institutions, however,
there are striking similarities in the factors that influence the educational attainment of
women. The following section enumerates some that stand out.
2.4

BARRIERS TO FEMALE EDUCATION:

The barriers to girls' education may be found in the home, at school, in the

marketplace, and in society at large. Gender inequality begins with girls' socialization
that women should devote themselves primarily (if not solely) to their husband and
children, not to employment in the labor market. Education is encouraged if it

29

improves marriage prospects, but not if it threatens a young woman's suitability to be

a wife. In more traditional societies, education beyond literacy may reduce a woman's
chances to marry. The help that parents expect from their children also determines the
relative schooling of sons and daughters. In Taiwan (as in other parts of East Asia),
custom dictates that sons take responsibility for their parents (Susan Greenhalgh
1988). Whereas parents give their sons freedom to develop the knowledge and skills
to increase their future incomes, they limit their daughters' education. Although girls'
education levels rose during Taiwan's economic expansion, the gender gap did not
diminish. Parents took their daughters out of school earlier than their sons so that the
daughters could earn the money to support their brothers' schooling. William Parish
and Robert Willis (1993) found that Taiwanese girls (especially those early in the birth
order) received less education and married earlier. They interpreted this as the effect
of the credit constraints that parents face in providing education to older children,
rather than as the effect of their concerns for old-age support. Parents' education
influences the gender differences in education but what does it represent? The
literature interprets the effect of parental education in different ways. First, parents'
education may influence the value that parents attach to formal education. The
expected direction of the relationship is that more educated parents value more highly
formal education both for their daughters and for their sons. Susan Cochrane, Kalpana
Mehra, and Ibrahim Taha Osheba (1986) found that at given levels of family income,
parental education had the strongest influence on educational aspirations for children
in both rural and urban areas in Egypt. Second, parents' education measures more
generally the degree to which parents are open to influences outside tradition. Hence,
even in a relatively closed society which restricts the activities of girls and women,
more educated parents are less likely to view formal education as a threat to their way

30

of life. Third, parents' education can proxy family income or wealth when more direct
measures are not available. Another home factor that affects girls' education is the
demand for their time in alternative uses. In some rural societies, boys perform a
larger share of family labor (e.g., herding livestock or plowing fields). However, with
few exceptions, girls do more home and marketplace work than boys. They cook,
clean house, fetch water, and help their mothers care for younger children, especially
those who are ill. In Nepal and Java, for example, most young girls spend at least onethird more hours per day working at home and market than boys of the same age, and
in some age groups as much as 85 percent more hours (Moni Nag, Benjamin White,
and R. Creighton Peet, 1980). Besides lost work, parents may feel that girls are
foregoing important training at home if they go to school. If women generally enter
the informal labor market by continuing in a crafts tradition (or in agriculture), the
skills for which are imparted by their mothers, then the cost of attending formal
schooling must include not only the opportunity cost of current time, but also the lost
alternative training. In some societies, another opportunity cost of schooling is the
earlier use that the family can make of the brideprice for daughters. Delaying
marriage due to schooling postpones receiving the bride wealth and may even reduce
its amount if there is greater value placed on younger, than on more educated, brides.
In addition to the financial costs and opportunity costs of schooling, educating girls
may exact non-pecuniary or "psychic" costs as well. In certain settings, socio-cultural
factors (such as norms proscribing societal, economic, and familial roles of women)
and religion strongly influence the behavior of parents by imposing a heavy cost on
nonconformist behavior. The importance of preserving a young girl's reputation in
such cultures leads to high dropout rates among girls at the onset of puberty (John
Caldwell, Pat Caldwell, and Palli Hanumantha Reddy 1985; Hanna Papanek 1985). In

31

countries in which females are usually secluded, for example, girls may attend only
schools that do not admit boys or only those that employ female teachers. Even when
education is public and tuition is "free" in most countries around the world, school
attendance entails cost outlays from family resources. Contributions to the school,
textbooks and learning materials, and boarding fees are some of the nontuition costs
of sending children to school. Families also incur additional expenses for uniforms
and transport to school. For a variety of reasons, these out-of-pocket expenses may be
different for boys and girls. For example, parents may be more reluctant to send
daughters to school without proper attire, thus raising the cost of school attendance for
girls. Parents may choose not to send their daughters to distant schools because of the
fear of moral or physical peril. Even in the relatively more open societies of Malaysia
and the Philippines, distance to school is a greater deterrent to girls' enrollment than to
boys' (Elizabeth King and Lee Lillard 1987). School facilities themselves can be
hostile to girls. In Bangladesh, parents have withdrawn girls but not boys from
schools without latrines; and in Pakistan, many parents worry about enrollin girls in
schools without boundary walls providing privacy (Shahrukh Khan 1993). Kuwait
and Saudi Arabia (in contrast to Morocco and Egypt) illustrate how wealth has
increased school facilities for girls so that the demands of culture are met. The school
environment exerts its own influence on female education. Despite compulsory
education laws, open admissions policies, and "free" education, schools may be
"closed" or inaccessible to girls and women. Barriers to girls' education begin at the
primary school level where teachers and textbooks project attitudes that discourage
performance of girls, or promote stereotypes of girls not being as capable as boys in
learning technical subjects or mathematics. Studies have found that single-sex schools
may be more effective for girls' learning. In Thailand, these schools make a

32

difference; even after controlling for such factors as socio-economic home

background and school resources, girls achieved more in single-sex schools than in
coeducational schools, while boys did better in the latter (Jimenez and Lockheed
1989). Gender-specific admissions policies present barriers at the postprimary
education level in certain areas of study. Finally, the perception that benefits of
education are lower for women dampens demand for education. Pregnancy, childbirth,
and childcare duties remove women from the workforce for substantial periods. In
certain occupations, entry barriers such as restrictions against hiring married women
serve as obstacles to receiving the full returns to education. Even in East Asia and
Latin America where more women are
entering the formal labor market, women workers are still concentrated in a few jobs
which are generally characterized as of low skill, low wages, and low mobility. In
Malaysia, Bee-Lan Chen Wang (1982) found that girls expected their salaries to be
lower than those boys would get, andbelieved their range of jobs to be more restricted.
These expectations, in turn, affected educational aspirations. The labor supply pattern
displayed by women is partly due to employers' wage-setting decisions which place a
lower value on women's work. But it is also partly due to the fact that education
increases women's productivity in nonmarket activities too, and that unless betterpaying jobs or jobs with flexible hours to accommodate family responsibilities are
available to those with secondary education, staying at home is often a superior
option. Taken together, these various factors determine whether girls enter school,
how long they remain in school, and how well they perform. Only by changing these
barriers can the educational attainment of girls be improved.

2.5

PUBLIC POLICY AND EDUCATION

33

Experience suggests that compulsory education laws and tuition-free primary

education have not been enough to equalize enrollment rates between men and
women in many countries around the world. Consequently, several projects have been
tried specifically to target female education. The lesson from past interventions in
many countries is that success depends on how well the barriers to female enrollment
are understood and addressed, how simple and affordable these programs are, and
how much sustained support they receive from the government, teachers, education
administrators, and communities. Rosemary Bellew and Elizabeth King (1993)
reviewed the experience in more than twenty-five developing countries that have
implemented at least one program designed to raise female education (see Table 5 ).
Most of these efforts, however, began and ended as pilot projects with short-term
funding and implementation support from donor agencies and nongovernmental
organizations (NGOs). They have rarely been an integral part of national education
development plans and have rarely resulted from national policy-making. Very few of
the programs were subjected to evaluation; thus, there is sparse information about
their costs and results. Evidence suggests which interventions have been successful,
but few clear conclusions can be drawn about the relative effectiveness of specific
strategies. One solution is to implement a mix of strategies, but this may be more
costly and more difficult to administer and thus not sustainable. The review of
projects reveals that, in some cases, a simple program of building more schools in
remote rural areas or providing radio education and correspondence courses has been
sufficient to raise girls' enrollment substantially. Examples include the positive
response to an expansion of rural primary schools in Egypt between 1981 and 1987,
and the provision of feeder schools by a local NGO in Bangladesh. In Balochistan
Pakistan, the establishment of new private schools is being encouraged through grants

34

from the government. The amount of the subsidy is tied to the number of girls who
enroll in these new schools as a way to target female enrollment. The success of these
interventions depends on the level of costs borne by the family and on the level of
demand for girls' schooling being sufficiently high. There are cases of half-empty
classrooms in settings where the total costs associated with school attendance,
including out-of-pocket expenditures and opportunity costs, are too high and the
perceived benefits to formal education of girls, too low. Several programs have
focused on reducing the various costs of schooling, with mixed results. Providing free
uniforms could have raised girls' education in Bangladesh, but administrative
problems with production and distribution of the uniforms resulted in the project
being abandoned after two years. A different tactic is being tried in the Sindh region
of Pakistan. By abolishing compulsory uniforms, costs are expected to be lower for
families. Results remain to be seen. Several countries have undertaken scholarship
programs for girls - Bangladesh, Guatemala, India, and Nepal. The Bangladesh
project is the best known because it has been formally evaluated. Established in 1982
by a local nonprofit organization, it began as a pilot project in one district, and then
expanded to include more than 20,000 female students by 1988. At a cost of $45 per
year per student, the project subsidized school expenses for admission and exam fees,
transportation, uniforms, and books. In the project areas, female enrollment rates rose
from 27 percent before the project began, a figure similar to the national average, to
44 percent in 1987 - more than double the national average. Spurred by this success, a
new seven-year project to provide stipends for 1.5 million girl-years of secondary
education was launched in 1993 with support from international donors. All girls in
grade six in the selected subdistricts will be eligible to receive stipends which will
cover the entire cost of tuition, examination fees, and an increasing proportion of

35

other school fees, textbooks, stationery, uniforms, transport, and kerosene for lamps.
By the final year of secondary education, the stipends will provide for about twothirds of the estimated out-of-pocket costs of attending school. Alleviating the
"psychic" costs to parents of sending their daughters to school may be at least as
important as lowering the pecuniary costs of schooling, although empirical studies do
not directly shed light on this. School-building programs appear to be more successful
when they consider cultural standards. The Sindh project mentioned above provides
for boundary walls around girls' schools and latrines. A survey of 2000 parents in
Pakistan reported that they did not mind the absence of desks and chairs in girls'
schools but two-thirds objected to the absence of private sanitary facilities (Robert
Culbertson et al. 1986). Anecdotal evidence suggests that parents prefer schools that
have female teachers. This evidence has led to projects aimed at enlarging the pool of
female teachers, a task itself beleaguered by the same problems as getting the girls to
school. Nepal launched a major program for female teachers in 1971 that is said to
have increased the share of female teachers from 3 percent in 1972 to 10 percent in
1980. Three special features of this program were active recruitment through posters,
newspaper announcements, and radio programs aimed at breaking down community
resistance; provision of hostel accommodations, along with a monthly stipend, travel
expenses, medical care, and tutorial assistance; and a realistic admissions policy that
accepted girls who had not attained the required Secondary School Leaving
Certificate. Likewise, Pakistan introduced a teacher-training program that focused on
recruiting girls from rural areas. The program began in the Punjab province in 1984
where the government introduced primary teacher training in units attached to local
secondary schools. Its special feature was that it located the training closer to the
homes of the girls, thus weakening parental opposition as well as lowering costs by

36

eliminating the need for special boarding facilities for the female trainees. Girls'
education requires not only cash outlays but also the girls' time. Allowing girls to
bring younger siblings to school, establishing day-care centers for mothers at work, or
introducing simple household technologies can release girls' time from household
work. Colombia's Hogares de Bienestar Infantil, which are community-based day-care
centers started in 1987, have freed many older girls and women to attend school or
tojoin the workforce. In the Ghansu province of China, girls in twenty to thirty
schools are allowed to bring their younger siblings to class; China has also expanded
preschools, relieving older girls from child care during the day as well as providing
younger siblings a head start in education. The introduction of fuel-efficient woodburning stoves in Nepal was designed to reduce the time and energy spent by girls and
women hauling wood, but it is not clear what impact this has had on girls' school
attendance. In Burkina Faso, the introduction of mechanical grain mills, accessible
water wells and carts for hauling wood in villages as part of a nonformal education
program for women did little to raise attendance in the project areas. Instead of
attending literacy classes with the time saved, women used the time for other
household work, such as preparing more elaborate meals and weaving (Brenda G.
McSweeney and Marion Freedman 1980). Some programs have focused on informing
the community at large of the social gains from higher female education. In an
ongoing education project in Mali, media campaigns are planned to advertise the
value of education as an investment. In Morocco, materials that are being developed
to promote girls' education have been distributed by extension workers who visit rural
communities. In addition, several countries have initiated large-scale projects to revise
textbooks for the purpose of improving the image of women and girls depicted in
them and broadening the roles shown for women beyond the traditional ones; these

37

countries include Bangladesh, China, India, and Kenya. The impact of these different
efforts, however, remains to be assessed. Improving women's labor market
opportunities provides another means to realize the benefits from education. Some
projects have aimed at abolishing the barriers to entry for girls and women in
technical postsecondary education and training programs. The ongoing female
secondary school project in Bangladesh supports an occupational skills development
program for school-leaving girls. For these programs to pay off, past efforts indicate
that well-designed recruitment and counseling components are required. For example,
Morocco initiated an industrial and commercialjob-training program for women in
1979. Young women with at least twelve years of schooling were recruited to the
commercial centers for training in accounting and secretarial skills; those with nine
years of schooling were recruited to the industrial centers for training in drafting,
electricity, and electronics. Women competed with men on the national entrance
examination to be admitted; counseling for women was provided and a formal job
placement service was established for graduates. A 1983 evaluation showed that
completion rates were comparable for men and women, and that the employment rate
of female graduates was much higher than for women in the general population with
the same level of formal education but no vocational skills training (Margaret Lycette
1985, USAID 1983). Gender-targeted education programs are not the only way by
which the government can increase female education. Broader education and
noneducation policies matter. For example, investments to improve the quality of
primary education are likely to yield greater benefits for girls than investments at the
tertiary level because girls are more likely to quit school after the primary cycle.
Similarly, investments to increase the general availability of reading materials in rural
areas are likely to improve the retention of literacy skills, especially for those women

38

who leave school earlier than men. The delivery of family planning programs can
alter the lives of young women profoundly in many countries because teen pregnancy
is frequently one reason why girls drop out of secondary school. And employment
policies designed to expand the opportunities of women for paid work will induce not
only larger school enrollments but also better performance in school by girls. This
review emphasizes the need to improve the monitoring and evaluation of projects.
Although research work unrelated to specific projects has provided evidence on the
benefits of educating women and on the barriers to girls' education, this research has
not addressed the difficult practical questions that field operations face. Research that
is directly linked to the evaluation of projects will be better able to quantify the
impact of specific interventions and to examine the effectiveness of the processes by
which these interventions are implemented. Increased awareness of the importance of
project evaluation is clearly needed. Few of the projects reviewed established baseline
conditions in the community prior to the project. Only a handful of projects undertook
a case study to understand the factors that may hinder girls' education and these
studies are based only on small nonrandom samples of schools or households in one
or selected communities. Surveys for the purpose of identifying the impact of specific
interventions are rare. Yet unless we are willing to subject these education projects to
the same scrutiny generally accorded other projects, there will be few real lessons for
future efforts.
2.6

Summary of Literature Review

The summary of literature review is the impacts of different health and

education indicators on Economic growth in Pakistan. We observed these findings

from previous literature that Per capita GDP is positively influenced by health and
education indicators in the long run and health and education indicators cause the per

39

capita GDP. However, in the short run the health and education indicators fails to put
significant impact on per capita GDP. It reveals that health and education indicators
have a long run impact on economic growth. It suggests that impact of health and
education are only a long run phenomenon and in the short run there is no significant
relationship exists between health and education variables and economic growth. The
major policy implication of the study is that if we desire a high level of per capita
income, we can achieve it by increasing and improving the stock of health and
education human capital, especially if current stocks are at lower end. Moreover,
study also points out a rather diminutive role of public health and education
expenditure in determining the per capita GDP.

Chapter 3

RESEARCH METHODOLOGY

40

3.1

Data & Type

Empirical studies of economic growth begin with the neoclassical model,

originally proposed by Solow (1956) and extended by Mankiw, Romer, and Weil
(1992) to include human capital. This model appears in the general form as:

Yt = At Kt Ht Lt1-- e1t ; t = 1, 2,3 (1)

Where Yt is aggregate production of the economy, At is total factor productivity, Kt is

real capital stock, Lt is employed labour force, Ht is higher education enrolments at
time t and e1t is the error term. Taking natural logs (Ln) on both sides of equation (1)
gives an estimable linear function:

Ln Yt = Ln At + LnKt + LnHt + LnLt + e2t ; t = 1, 2, 3 (2)

Where , , (1--) are the elasticities of production with respect to capital, human
capital (higher education) and labor respectively and Ln At is a constant parameter,
and e2t is the error term, which reflects the influence of all other factors.

3.2

Data Sources
The data for the study are time series data covering the time period 1972-2005.

They were gathered from the Economic Survey of Pakistan (various issues). The
variable Kt, represents gross fixed capital formation (proxy variable for physical
capital). The output, Yt, is aggregate out put and measured by real GDP (proxy
variable for economic growth). Gross fixed capital formation and real GDP are

41

evaluated in Pakistani rupees at constant year 2000 prices. The labor force, Lt,
represents the total number of employed people each year. Ht is higher education and
represents number of enrolled students at university level.

3.3

Sample
The data for the study are time series data covering the time period 1972-2005.

They were gathered from the Economic Survey of Pakistan (various issues). The
variable Kt, represents gross fixed capital formation (proxy variable for physical
capital). The output, Yt, is aggregate out put and measured by real GDP (proxy
variable for economic growth). Gross fixed capital formation and real GDP are
evaluated in Pakistani rupees at constant year 2000 prices. The labor force, Lt,
represents the total number of employed people each year. Ht is higher education and
represents number of enrolled students at university level.

3.4

Selected variables:

Ln = Natural Logarithm
Y = Real GDP
EDUEXP = government expenditure on education on education as % of GDP
LFPR = labour force participation rate
GFCF = gross fixed capital formation
i = Error Correction Term

3.5

Econometric Model

42

To find out the role of higher education on economic growth, this study
employs time series econometrics, such as cointegration and causality. These
techniques are widely used in a Vector Autoregressive (VAR) framework, this study
also uses these techniques in a VAR modeling framework for the analysis of data.
Granger (1969) developed a test to check the causality between variables. Granger
and Newbold (1974) pointed out that there is a possibility of spurious causality, to
avoid it, all series under investigation need to be stationary. Granger (1988) asserts
that, standard tests for causality are valid only if there exits a cointegrating
relationship. That is, to check the cointegrating properties of the variables under
consideration is a necessary precondition for causality testing.
The model used in this paper is based on the aggregate production function.
Y = A.K. L. H (1)
Y is output "A" is technological progress, "K" is capital stock, "L" is labour force, and
"H" is used for Human capital. Human capital can be decomposed into two factors "L,
E" where "E" is level of education. We can replace "H" with "E", and rewrite the
equation as,
Y = A.K. L. E (2)
Equation (2) given above, is used to develop the econometric model to determine the
impact of education expenditure on economic growth. The data used in this study is
taken from different sources, including the World Development Indicators, state bank
of Pakistan and economic survey of Pakistan (various issues). Natural logarithm has
been taken for all variables. The variables used in this analysis include "Real GDP,
gross fixed capital formation, Government expenditure on education as a percentage
of GDP, labour force participation rate. In the empirical model "Y" represent "real
GDP". "K" is used for "capital stock", "L" is used for labour force, and "E" is human

43

capital measure. Real GDP is a measure of countries output or national income. And it
can be defined as total market value of all the goods and services produced in a
country during one financial year. Gross fixed capital formation is used as a measure
of capital stock. Gross fixed capital formation or "GFCF" is a macroeconomic
concept used as measure of the net investment in an economy in "fixed capital assets"
during one financial year. Labour force is considered as the number of skilled workers
willing to work. Labour force is one key factor in economic development of labour
intensive countries. In the model, labour force participation rate is used as proxy for
labour.
Generally, Human capital refers to "skilled and efficient and productive labour force".
Human capital is based upon two main factors "education and health". In the present
study, our aim is to determine the impact of education on economic growth so we
have used "government education expenditure as a percentage of GDP" as measure of
human capital.
First test of stationery is conducted to solve the problem of stationerity by using the
unit root test. The Augmented Dickey-Fuller test has been used for this purpose. In
order to determine the long run relationship johansen co-integration test has been
employed. To combine the long-run dynamics with short run dynamics we used vector
error correction model. All the variables are in log form and following model has been
used for the analysis.
LnY = + 1Ln(EDUEXP) + 2Ln(LFPR) + 3Ln(GFCF) + i

3.5

Statistical Technique

44

ADF unit root test is employed to test for the stationarity of Yt, Kt, Lt and Ht,
at level and then first difference of each series. The results of the ADF test at level and
first difference are reported, by taking into consideration of trend variable and without
trend variable in the regression. The t-statistics for all series from ADF test are
statistically insignificant to reject the null hypothesis of non-stationary at 5%
significance level. This indicates that these series are non-stationary at their level
form.

Chapter 4

FINDINGS AND RESULTS

45

Before testing for co integration, the unit root test is used in order to investigate the
stationary properties of data and all variables are found stationary at first difference.
After investigating the order of integration study proceed for co integration and
Granger causality test. For the investigation of dynamic behavior of all variables
impulse response function and variance decomposition is also carried out.

4.1

Order of Integration
ADF unit root test is employed to test for the stationarity of Yt, Kt, Lt and Ht,

at level and then first difference of each series. The results of the ADF test at level and
first difference are reported in Table 2, by taking into consideration of trend variable
and without trend variable in the regression. Based on Table 2 at level, the t-statistics
for all series from ADF test are statistically insignificant to reject the null hypothesis
of non-stationary at 5% significance level. This indicates that these series are nonstationary at their level form.
Table 2: Dicke-Fuller/Augmented Dickey-Fuller (ADF) Test for Unit Root Level
Variables
Without
Trend
& Without
Trend
&
Ln Yt
Ln Ht
Ln Kt
Ln Lt

Trend (k)
-1.724(2)
-0.356(2)
-2.384 (2)
-0.802 (0)

Intercept (k)
-2.752(2)
-1.846(2)
-2.869 (0)
-2.727 (0)

Trend (k)
-4.620*(1)
-4.234*(1)
-4.166* (1)
-5.823* (0)

Intercept (k)
-4.830*(1)
-4.114*(1)
-4.742* (1)
-5.753* (0)

Note: The null hypothesis is that the series is non-stationary, or contains a unit root.
The rejection of null hypothesis for ADF test is based on the MacKinnon critical
values and numbers in parentheses indicate number of optimum lags (k) based on
Schwarz Information Criterion (SIC).

46

* Indicates the rejection of the null hypothesis of non-stationary at 5% significance

level.
When the ADF test is conducted at first difference of each variable, the null
hypothesis of non-stationary is easily rejected at 5% significance level as shown in
Table 2. This is consistent with some previous studies1 which demonstrated that most
of the macroeconomics and financial series are expected to contain unit root and thus
integrated of order one, I(1). Since the variables are integrated of same order I(1), so,
multivariate cointegration test for long run analysis could be conducted.
The results of another methodology are given below
The time series data is used in this analysis, the ADF test is used for unit root problem
in the variables. The ADF test is performed at level as well as first difference. The lag
length is determined by using AIC and SICS criterions. The outcome of ADF given in
Table-1, which show that not all the variables are stationery at level form but at first
difference all the variables become stationery. This indicates that the variables are
integrated of same order.
To determine the long run relationship between the GDP growth and all demographic
variables johansen co-integration test is used. The results of co-integration test, given
in table-2. The lag length for the test is determined by "VAR" and The "FPE, AIC
AND SC" criterion indicates the optimal lag length as "3". Table-2 presents the result
of Johansen co-integration test. The trace test given in panel (a) of table-2 indicates 2
co-integrating equations and maximum eigenvalue given in panel (b) of table-2
indicate 1 co-integrating equations at 5% level of significance, which indicate that the
model do possess a long run relationship.

Table-1: ADF Unit Root Test

47

Variables

Level

1st Difference

Result

LNY
LNEDUEXP

0.574444
-2.134971

-4.864370*
-5.097708

I(1)
I(1)

LNGFCF

-1.102418

-4.793458*

I(1)

LNLFPR

-0.322135

-7.972794*

I(1)

Source: researcher's calculations using E-views 5.0

NOTE: * indicates level of significant 5.

Table-2(a): Co-Integration Test :( Trace Statistics)

Hypothesised
Trace
0.05
No. of CE(s)
Eigenvalue
Statistic
Critical Value
None *
0.837542
82.15412
55.24578
At most 1 *
0.541850
36.72078
35.01090
At most 2
0.479375
17.20682
18.39771
At most 3
0.034924
0.888706
3.841466
Trace test indicates 2 co-integrating eqn(s) at the 0.05 level
* denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values
Source: researcher's calculations using E-views 5.0

Prob.**
0.0000
0.0325
0.0728
0.3458

Table-2(b): Co-Integration Test :( Maximum Eigenvalue)

Hypothesised
Max-Eigen
0.05
No. of CE(s)
Eigenvalue
Statistic
Critical Value
None *
0.837542
45.43334
30.81507
At most 1
0.541850
19.51396
24.25202
At most 2
0.479375
16.31812
17.14769
At most 3
0.034924
0.888706
3.841466
Max-eigenvalue test indicates 1 co-integrating eqn(s) at the 0.05 level
* denotes rejection of the hypothesis at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values
Source: researcher's calculations using E-views 5.0

Prob.**
0.0004
0.1873
0.0657
0.3458

The co-integration result indicates the presence of error correction model. Thus, the
vector error correction model is tested. This indicates short run dynamics of the
48

model. The error correction model combines the short- and long-term relations
between analysed variables. The results of error correction model given in Table-3
confirm the co-integration results and indicate the presence of error correction term
for "real GDP, gross fixed capital formation and labour force participation rate".
"Error correction equation shows correct negative sign for "real GDP, labour force
participation rate and gross fixed capital formation", the values for real GDP and
labour force participation are highly significant.
"-0.35" indicates that, about 35% of the previous disequilibrium has been removed in
the present period for GDP growth rate. However, gross fixed capital formation show
insignificant and education expenditure show no short run impact.

Table-3: Error Correction Model

Error Correction:
CointEq1

D(LNRGDP) D(LNLFPR) D(LNGFCF) D(LNEDUGDP)

-0.356091
-5.82E-05 -2.399615
1.78E-05
(0.08476)
(4.0E-05)
(3.32371)
(2.2E-05)
[-4.20116] [-1.47010] [-0.72197] [ 0.80749]

D(LNRGDP(-1))

-0.187994
(0.18045)
[-1.04183]

-2.35E-05
(8.4E-05)
[-0.27906]

1.406734
(7.07587)
[ 0.19881]

3.12E-05
(4.7E-05)
[ 0.66405]

D(LNRGDP(-2))

-0.362464
(0.17347)
[-2.08949]

0.000195
(8.1E-05)
[ 2.41025]

1.718456
(6.80230)
[ 0.25263]

5.17E-05
(4.5E-05)
[ 1.14291]

D(LNLFPR(-1))

-2453.305
(890.325)
[-2.75552]

-0.759945
(0.41598)
[-1.82690]

2298.043
(34912.4)
[ 0.06582]

0.120815
(0.23203)
[ 0.52069]

D(LNLFPR(-2))

-1773.542
(781.997)
[-2.26796]

-0.166915
(0.36536)
[-0.45685]

-13214.60
(30664.6)
[-0.43094]

0.100794
(0.20380)
[ 0.49458]

D(LNGFCF(-1))

-0.007759
(0.00886)
[-0.87542]

-3.64E-06
(4.1E-06)
[-0.87838]

0.298314
(0.34755)
[ 0.85834]

4.80E-07
(2.3E-06)
[ 0.20774]

49

D(LNGFCF(-2))

-0.025418
(0.00860)
[-2.95402]

-5.26E-06
(4.0E-06)
[-1.30865]

-0.657774
(0.33741)
[-1.94947]

-1.26E-06
(2.2E-06)
[-0.55990]

D(LNEDUGDP(-1)) -4195.337
(1389.77)
[-3.01872]

0.101975
(0.64933)
[ 0.15705]

-52788.12
(54497.4)
[-0.96863]

0.050242
(0.36219)
[ 0.13872]

D(LNEDUGDP(-2)) -1082.704
(1243.53)
[-0.87067]

-0.295080
(0.58100)
[-0.50788]

-38426.69
(48762.8)
[-0.78803]

0.129356
(0.32408)
[ 0.39915]

3973.641
0.118065
42930.34
(718.459)
(0.33568) (28173.0)
[ 5.53078] [ 0.35172] [ 1.52381]
Source: researcher's calculations using E-views 5.0

-0.093518
(0.18724)
[-0.49945]

Chapter 5

CONCLUSIONS

The cointegration modeling techniques used in the study has revealed that there is a
long run relationship between investigated variables (output, capital, labor and higher
education). Overall, the empirical results suggest that the higher education and
economic growth have long run contemporaneous relationship or equilibrium. Toda
and Yamamoto causality test has indicated that there is a unidirectional causality
running from economic growth to higher education but higher education does not

50

cause economic growth as the higher education effects economic growth after a gap of
time.
The gross enrolment ration in higher education institutions of Pakistan is 3% as
compare with India (11%), Bangladesh (7%) and Nepal (6%). Sound policies need to
be adopted for increasing and improving the higher education and thereby economic
growth. Since the proportion of highly educated people in the total population of
Pakistan is too low, so, there is a need to increase the proportion of highly educated
labor in the overall population. For this purpose in the higher education institutions,
government should give more emphasis to finance and built the infrastructure
according to the need of growing population. The higher education in many
universities and institutions of Pakistan is based on self-finance. To increase the
enrolment in the higher education, a highly subsidized education system needs to be
introduced. The highly incentive based programs in higher education should be
introduced. Moreover, to stop the brain drain the emphasis should be given to absorb
unemployed highly educated people in the public and private sectors at competitive
service and pay structure. This paper investigates the impact of government
expenditure on education on economic growth on Pakistan for the period 1980-2009
by using co-integration and vector error correction techniques. The study also
indicates capital stock and labour force participation in economic growth of the
country as few key variables that seem to effect the economic development of
Pakistan along with education in the long-run. The results confirm that education has
a long run relationship of economic growth. Better standards of education improve the
efficiency and productivity of labour force and effect the economic development in
the long -run. However, in the short-run education do not have any significant
relationship with economic growth.

51

This implies therefore that "education quality is essential to increase the economic
growth and human capital abilities for the country, the government with competent
administration at the lower level, should increase the expenditure on education sector
to promote research and development activities and improve the quality of education
in order to improve the economy's growth performance.

5.1

Recommendation
The recommendations of the study is that countries that desire a high levels of

per capita income, they can achieve it by increasing and improving the stock of health
human capital and education, especially if current stocks are at lower end. Moreover,
study also points out a rather diminutive role of public health expenditure and
education in determining the per capita GDP. From a research perspective, results
implies that health human capital and education must be included in the growth
equations as it is also a very important part of human capital. Moreover there is dire
need of study, which analyse the dynamics of health andeducation demand in
Pakistan, as such study is lacking for many years.

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