ADDIS ABABA UNIVERSITY

COLLEGE OF BUSINESS & ECONOMICS

DEPARTMENT OF ECONOMICS
Specialization: MSc in Development Economics

Econ 656: Research Methods and Seminar in Economics

Group Assignment: Peer literature review:

On

The Impact of Human Capital Development on Economic Growth

Articles Source: The articles were collected from different research sites:
 Research Gate
 Google Scholars
 Cambridge core
 Course Hero
 Acadamia.edu
Submitted To: Dr. Beshir.A (PhD)
Submitted By:
1. Amsalu Bihonegn ...........ID No: GSE/3024/14
2. Getachew Molla...............ID No: GSE/9303/11
3. Hamza Ayub.....................ID No: GSE/8563/14
4. Hanan Nesru......................ID No: GSE/4627/14
5. Telila Wakwaya……….....ID No: GSE/4660/14
6. Alemnew Amsalu………...ID No: GSE/7691/14

Submission Date: 31 December 2022

Introduction

The article to be reviewed is titled “The Impact of Human Capital Development on

Economic Growth” published after 2012.

The main objectives of their articles are to analyze the impact of human capital on
economic growth both in the long run and short run. The methodologies used were
ARDL approach to co-integration and the error correction model (ECM). However,
some have used the log-log model and employed the Johansen co-integration
technique in order to find the short-run and the long-run association between human
capital and economic growth.

Concerning their finding, all agreed and confined themselves as human capital
development through education and health has a direct role in economic growth for
a hypnotized country. Their respective research shows that there is a stable long-run
relationship between real GDP per capita, education human capital, health human
capital, labor force, gross capital formation, and official development assistance
(social development). The estimated long-run model indicates that human capital in
the form of health have big positive impact on real GDP per capita rise followed by
education human capital. The authors claimed as the findings are consistent with the
endogenous growth theories.
Research Problem

The researcher vividly put the problem of research as an investigation of the

relationship between human capital (resources devoted to this sector) and economic
growth.

Common Objective of the Studies

The author’s objectives were more or less the same. They put the investigation of
the impact/role of human capital in one country’s economic growth and development
through innovation (R&D) or through productivity enhancement as their main
objectives while they conduct their research. They also used time series data over a
period of time. But few of them used panel data

Research Questions

The researcher put the following question to answer them through his research

I. Does human capital development have a significant long-run and short-run

impact on economic growth?
II. Is there a causal relationship between human capital development and
economic growth? Some researchers have attempted to investigate the
relationship between human capital development and economic growth

Methodologies (Analytical Framework)

In their model specification, they used the neoclassical growth model as a base for
their analysis. Real GDP per capita used as dependent variable whereas, physical
capital and human capital (life expectancy at birth as proxied human capital) are
independent (regressor) variables. Some neglected tertiary level school enrollment
in their model but other considered even dummy variable in their model.
In common, the Solow Model has been extensively used for growth accounting
purposes. The neoclassical as well as endogenous growth theorists claim that human
capital causes positive effect on the output. In such a situation omitting human
capital may lead to biased results of estimates. That’s why Solow Model could not
capture the growth experienced in the world. Following Mankiw et al. (1994), and
Jalil & Idrees (2013), most of researcher incorporate human capital in to the Solow
Model. The Solow production function is given as below,

Incorporating the element of human capital (H) in to the production function, which
is given by equation 1, the production function takes the form of equation 2.

Where:

 Y= Real GDP
 A= Technology used for the production
 K= Capital used for the production in economy
 H= Human capital used in the production
 L= Number of labor used in the production
 And α+β+γ=1

In their article, some authors used Autoregressive Distributed Lag (ARDL) approach
to co-integration, which is proposed by Pesaran and Shin (1997, 1999) and Pesaran,
Shin, and Smith (2001) to test the long-run co-integration relationships between
variables. However, some of them used Johansen maximum Likelihood (1988) co-
integration method and log-log model and employed the Johansen co-integration
technique in order to find short run and long run association between human capital
and economic growth.

Common Data Source

The authors completely used a secondary data source which is time series data.

Most of the data are from World Bank development indicators and

 International organizations like UNCTAD and World Bank Data Bank

 International Monetary Fund (IMF)
 Africa Development Bank Data Base
 Different statistical bulletin
 Different country’s national/central Bank

Discussion

Different diagnostic test has been employed:

 Augmented Dicky-Fuller Unit Root Test to check the degree of stationarity

 Long-run ARDL Bounds Tests for Co-integration and log-log model and
employed the Johansen co-integration technique in order to find the short-run
and the long-run association between human capital and economic growth.
 Short-run Error Correction Estimates
 The Pairwise Granger Causality test is used to identify the direction of
causality between independent real GDP per capita and dependent variable,
education human capital (proxied by secondary school enrolment) and health
human capital (proxied by the ratio of public health expenditure to real GDP).
Conclusions

Many researchers are agreed on as human capital has a significant role in economic
growth. The main objective of their study was to analyze the impact of human capital
development on economic growth (using real GDP per capita, as a proxy for
economic growth). To determine the impact of human capital development on
economic growth (real GDP per capita), some have used the ARDL Approach to co-
integration and the error correction model (ECM). However, some have used the
log-log model and employed the Johansen co-integration technique in order to find
the short-run and the long-run association between human capital and economic
growth.

Critiques and their Discrepancy (Gap)

From a methodological point of view, some authors used education human capital
only proxied by secondary school enrolment and ignored primary and tertiary school
enrolment’s role in economic growth. Some argue as official development assistance
has no significant role in real GDP growth. But in reality, social development has a
positive role in economic growth.

Some author’s used slack time, training, drought, and policy changes measured as
dummy variables, which does not give very rich information about these variables.
If more information is available, future studies could use information such as time
and money spent on these country-level practices, to gain a more in-depth
understanding.

In Summary, many scholars believe that, human capital is only one factor in
accounting for differences in growth rates across countries and across firms. While
low starting levels of human capital may have hindered many countries’ economic
growth, its poor performance cannot be attributed to a lack of subsequent investment
in human capital. A more important proximate cause is the low level of investment
in physical capital. Low rates of investment in physical capital have implications for
the rates of return on human capital, particularly education. If human and physical
capital are complements then the policy problem is enabling them both to grow
rapidly. Returns to human capital investment depend on the success of policies in
promoting the growth of physical capital. There is evidence from micro studies that
the income returns to education reflect the effects of education in raising
productivity. These effects have been observed for both industry and agriculture. For
industry it is the secondary level which is important while for agriculture it is
primary education. Less research has been done on the productivity effects of health
and nutrition in many developing countries.

Inadequate investment in education and health are clearly not the only cause of many
countries’ economic difficulties. However, the poor health and education of
developing country’s workers are one-factor explaining their low income.
Government investment in the social sectors is likely to be economically productive
and indeed is likely to bring more direct benefits to the people than many other forms
of government expenditure.
Common References

Abbas, Q.,(2001). Endogenous Growth and Human Capital: A Comparative Study

of Pakistan and Sri Lanka. The Pakistan Development Review. 40(4): 987-1007.

Agénor, P.-R.and P.J. Montiel (2008). Macroeconomics, Princeton University Press:

Princeton

Barro, R. (1996). Health and Economic Growth. Mimeo, Cambridge: Harvard

University. Barro, R.J (1991). Economic Growth in a Cross Section of Countries.
Quarterly Journal of Economics, 106(2) : 407-443.

Barro, R.J and X. Sala-i-Martin (1995). Economic Growth . New York: McGraw-
Hill. Becker, Gary S.(1962). Investment in human capital: A theoretical analysis.
Journal of Political Economy, 70 (Supplement), 9-49.

Dinwiddy, C. and F. Teal (1996) Principles of Cost-Benefit Analysis for Developing

Countries, Cambridge University Press, 1996.

Freeman, R. (1986) “Demand for Education”, chapter 6 in O. Ashenfelter and R.

Layard (eds.) Handbook of Labor Economics, North-Holland, Amsterdam

Glewwe, P. (1996) “The relevance of standard estimates of rates of return to

schooling for education policy: A critical assessment”, Journal of Development
Economics, Vol. 51, pp.267-290.

Glewwe, Paul (1997), “How does schooling of mothers improve child health?”,
Living Standards Measurement Study, 128, World Bank: Washington DC.