And its Factors
in Economic Growth
Chapter 1 Introduction
Before discussion on development, one should know its component;
called economic growth. Economic growth is a key variable that measure all
economic activities in an economy. It can be defined as “increase in the value
of goods and services by an economy at market value over time”. It is also defined
as increase in the productivity capacity over time in a specific country. For
developing countries striking decrease in the level of economic growth is a problem.
As Many social evils are link with low level of economic growth for example
unemployment, suicides, crimes, and poverty rates.
Human capital is the most important determinant of economic
structure. It determines the productivity of the economic growth and development
at different sectors. It also exposes the development of social norms as the
defining projection of the human capital can portrays in different scenario,
but the most projected state of the human can be said that the abilities and
skill of the masses are called human capital. It has very positive effects on
economic growth and economic development, increase in the human capital will
leads to reduce in the mistakes and to improve plans and modalities of the
people. It also orients effects on the unemployment. Human capital is a best
instrument to increase economic growth at country level.
Human capital is considered
to be an active factor of production while the natural resources and capital
are the slow factors. Anything for economic growth can never being done until
we increase the skills of human beings so in order to utilize the other
resources efficiently we have to increase the mental and physical capacity of people
through literacy and by increasing their skills abilities in this way we can
decreases the unemployment and moves the economy towards economic growth.
There are two major determinants of human capital such as
education and health. Education is a key factor to promote the efficiency and
capabilities of the person. It is that factor which affects the whole sector of
the economy. Human capital can also be defines as “abilities and skills of
person.” It is observed from different researches of economist that higher
education plays a significant role towards economic growth. The education
increases the skills of the people and provides more chances for job.
There is strong link
between the education level and economic growth level in a country. When people
invest in their educations as a result they increase their employment
opportunity and then by increasing employment opportunities they are able to
earn more, reduce the poverty rate of a country, increases their living
standard and at the end all these factors leads to enhance the economic growth
level. The rate of return towards education and economic growth is likely to
have positive relation with each other.
In Pakistan it is regretting to say that just 1.56 percent budget
spends on education sector in 2010.Similarly health also contributes towards
Health has also significant impact on economic growth of a
country. Healthy workers are more efficient and more productive. Healthy and
physically fit workers increase the aggregate supply of the country that
increases exports in the long run, increase income per capita, improve living
standard of people and reduce un-employment and all these factors promote
economic growth of the country. Additional amount on health should be spent by
the Government to increase the productivity of the workers so that they are
able to work more efficiently.
Expected life of the people is also the
important factor of human capital. Health, physical fitness and maximum
experience of the peoples are indicating by the high life expectancy. The
expected life of the people plays a significant role in reducing unemployment.
The current expected life in Pakistan is 66 years (World Bank report). The
experienced persons do their work more efficiently and there is chance of doing
less mistakes or no mistakes. So as the experience of the people increases the
rate of unemployment tend to decrease. So there is negative relationship
between experience and rate of unemployment. As the life expectance of the
peoples increases by providing them good health facilities the experience of
the people also increases and they will be work more professionally.
Objective of the Study
The basic purpose of study is to find out the
association among economic growth and factors of human capital in Pakistan. And
also compare the gender wise education level and also role government in
2 Literature Review
As this research is basically conducted to see the
impact of human capital and its factors on economic growth, either human
capital is affecting positively or negatively and the role of public
investment. To see the relationship between human capital and economic growth
many economists do researches in order to find the impact of human capital on
economic growth in different countries. So the human capital includes literacy
rate, enrollment rate, health facilities & skills. Following are some
researches which are discussed below,
Sarwar (2013) investigated the role of human capital
formation on economic growth level of Pakistan for the time period 1973 to 2012
by using secondary data source. Johansen co integration approach is applied to
investigate the long run relationship between dependent and independent
variables. Result of study confirms that capital formation have highly positive
and significant impact over economic growth of Pakistan.
Qadri and Waheed (2011) applied Cobb Douglas
production function to examine the relationship between human capital and
economic growth using time series data from period of (1978 to 2008). Finally result shows that human capital and economic
growth are positively correlated with each other. Other economists Asghar and
Asma (2011) determine the relationship between human capital and economic
growth of Pakistan. They used “Johnsenco integration test” in order
to check the short run and long run relationship among the variables. According
to them human Capital and economic growth are strongly linked with each other,
so to ensure economic growth in the country, Pakistan has to invest more in
health and education services.
Akram(2008) estimates the
long run relation between health status and economic growth. Study concludes
that health status is helpful to increase the economic growth by increasing the
productivity and efficiency level of humans that will not only increase their
per capita income but also increase the aggregate growth level of the country.
Abbas (2008) explains the relationship between human capital and economic
growth in Pakistan with aggregate time series data. Approximated Johansen
approach and the study tell that human capital plays an important role in
economic growth. High expenditure on health and education are very favorable to
industrial as the marginal productivity of worker increased. Since in 1990s in
Pakistan the effect of human capital represents a negative impact on economic
growth because human capital policies are underprovided.
Abbas (2001) examined the long run relationship
between human capital and economic growth of two developing countries Srilanka
and Pakistan. Education and health are used as factors of human capital and
gross domestic product (GDP) used as a dependent variable to investigate the
effect of human capital on economic growth. Result of the study indicates that
human capital factors are significantly contributed to economic growth of
The impact of human capital on economic growth was
observed by comparing two countries i.e Pakistan and India by Abbas (2000)
utilizing data from 1970 to 1994, the OLS method is applied. Different proxies
such as primary education, secondary education and higher education were used
for this purpose. Different results obtained by using different proxies. Result
shows that primary education is positive correlated in case of India while in
case of Pakistan higher education is positively correlated whereas Secondary
education is positively related in case of both countries India as well as
0ver the last decades fiscal policy have an important
role in economic growth. Public investment polices related to privet sector
have keen impact over the countries. Government should adopt such policies
which helps the human capital to grow.
Based on recent literature, human capital also plays
an emphasized role in economic development. More specifically, either
educational quality or quantity seems to be major determinants of economic
growth, whereas in the existing economic growth models, human and physical
capital conduct a major role. surveys identified the productive contribution of
infrastructure components and human capital of public capital on per capita
income growth. There are two different channels through which a higher human capital
generates higher economic growth: firstly, through facilitating the absorption
of advanced technologies from advanced economies. Additionally, human capital
tends to be less easily adjustable than physical capital within the countries.
Nonetheless, the proxy variables of enrolment-ratios and average years of
schooling measure only the quantity of human capital. Thereafter, they are not
perfect measures of the educational component of human capital. That is the
reason why many recent studies use international data of schooling quality such
as tests scores, pupils-teacher ratio, repetition rates, and dropout rates. In
other studies, the effects that government expenditures on education and health
have on economic growth are being investigated. Whereas these measures may not
be perfect for productive expenditures (there is a different impact on economic
growth when governments invest on building school-houses or hospitals and when
they pay wages on public employees), it has been noted that public health expenditures
improve citizens’ health, while education expenditures promote cost efficiency
and meliorate skilful personnel.
In the same category of productive government
expenditures with a direct effect on growth rate is public capital. public
capital has a direct effect on subsequent growth through the enhancement of
private capital accumulation. For the improvement of the standards of living as
well as long lasting growth, both public and private capital accumulation are a
necessary condition. Particularly, long-run growth is affected positively by
infrastructure components of public capital, the quality of public capital
(paved roads, telecommunication services, and ports), and the relationship
between private and public capital matters for the economic growth. For
instance, good marginal productivity is increased by institutions and access to
international credit markets, leading to an increase in economic growth which
is also achieved by technology spill overs and learning-by-doing factors.
CHAPTER 3 DATA VARIALES AND
In this chapter the different variables
are analyzed under the descriptive purposes, and source of data will be discussed.
For examining the role of education and gender on the economic development we
will analyzed the following variables for descriptive purposes.
GDP growth Rate
Expenditure on the Literacy
Expenditure on the Health
Education Gender Wise
Higher Secondary College
analyzing the impact of human capital on Economic growth of Pakistan we using
the secondary data of twenty-four years which is taken from Economic Survey of
Pakistan, and the World data Bank.
Figure 01: GDP growth rate (%)
World Development Indicator
This graph shows the fluctuation in GDP
growth rate. It shows the increasing trend but also decrease at 1991, 1997,
2001, 2007 But now a days it start increasing the decreasing trend in GDP
growth is due to terrorism, instability in government and unfavorable
government policies, which result unfavorable environment for economic
Literacy rate are showing constant trend
in the starting years but after 1987 it is showing increasing trend and in year
2007 there is a great increase in the literacy rate, showings that the people
are moving towards education.
*Source: World Development Indicator
This graph also shows the increasing trend
it means that the facilities given to the people are good quality in the health
sector that’s why life expectancy of the people is increasing.
This graph explains the tendency of
government expenditure on education. This graph shows the constant between 2 to
3. From the graph we can conclude that the government does not put its
importance toward the education.
Expenditure on Health:
*Source: World Development Indicator
This graph shows the trend of health
expenditure remains constant. And it can be observed that Government increases
the expenditure on health sector during Mushraf’s regime. But it shows the
decline in the graph due to the political instability in the country and also
due to less management in the government sector and also due to the trend of
corruption in the whole country.
which is shown below explains the descriptive statistics of variables belong to
Sum Sq. Dev.
World Development Indicator
Whereas, EE= Expenditure on
education, GR=GDP growth rate,
HE=Expenditure on the health, LE=Life expectancy and LR=Literacy rate.
The data contains twenty five of annual
observations from period of 1991 to 2015. The descriptive statistics tells that
the average of growth of gross domestic
product is 4.073398with standard deviation of
1.866263. Whereas the average of education expenditure is with standard
deviation of and the minimum expenditure on education is 1.837820 and the
maximum expenditure on education is 3.022%.
The maximum expenditure on heath by
Government is 3.401686 % while the minimum expenditure on health is 2.503630 %
and the average of health expenditure is 2.785229 with standard deviation of 0.253046.
The maximum life expectancy in Pakistan is 66.37698 while the minimum life
expectancy is 60.39622 and the average is 63.44274with standard deviation is 1.817012.
The minimum literacy rate in Pakistan is 34.90000
while the maximum literacy rate is 58 and the
average of literacy rate is 48.84800 with
standard deviation of 7.854994.
Kurtosis statistics of variables shows
that the life expectancy and literature rate are platykurtic (flat and short
tail) and the other variables are lepokurtic (long tail and higher peak).
We cannot ignore the role of women in the
field of social development, and we can’t ignore her contributions. These
contributions will be fruitful if we educate them. In this context we will
analyzes the difference in education of both genders. For our simple analysis
we will analyze the primary, middle, high and higher secondary of both genders.
Figure 06 Primary School: Numbers of
students in “000”
*Source: State Bank of Pakistan: Annual publications
In the above figure in the initial periods
the difference of education in both gender is high, but as time passes the
difference reduced better one in 2015. From the above scenario we can concluded
that neither parents nor government interested to emphasized for educating
women at primary level within the one and half decade.
Middle Schools: Numbers of students “000”
*Source: State Bank of Pakistan: Annual
In the middle school the scenario is
totally different from primary level. Still the male has dominated numbers than
female, but their difference is negligible. If we analyze the trend over the
time we can estimate that in coming five to ten years the female will be more
than male at the middle school level.
Figure 08 High
School: Numbers of student in “000”
State Bank of Pakistan: Annual publications
In the context of high school, the trend
of both genders increases over the time. The difference in the gender level
remains stable through one and half decade. Over all their attainment at high
school remains increasing.
Higher secondary Colleges: No of students
State Bank of Pakistan: Annual publications
In the above figure same scenario can be
observed as observed in the middle schooling. Thrend of both genders increasing
over the time. And the difference in their education attainment level observes
smaller over the time.
Lower gender inequality in education means
higher female education at each level of male education. Because female
education is believed to have positive external effects on the quantity and
quality of education for educated women’s children (through the support and
general environment that educated mothers can provide), lower gender inequality
would therefore improve the human capital of the next generation, which should
also promote economic growth (World Bank 2001).
There is an overwhelming evidence that
higher female education, which would obtain as a result of lower gender
inequality in education, reduces fertility rates. Lower fertility could affect
economic growth in four different ways. First, lower fertility reduces
population growth and thus facilitates investment’s being used for capital
deepening (more capital per worker) rather than capital widening (equipping new
workers with capital), which would promote economic growth. Second, reduced
fertility lowers the dependency burden, increasing savings rates in an economy,
which would increase growth. Third, lower fertility will, for a limited period
of time, increase the share of workers in the population. When a large number of
workers enter the labor force as a result of previously high population growth,
it increases the demand for investment in capital equipment and social overhead
(such as housing). If this higher demand is met by increased domestic savings
(as a result of the reduced dependency burden), increased capital inflows, or
both, investment will expand— which should boost growth. Fourth, if growth in
the labor force is absorbed through increased employment, per capita economic
growth will rise even if wages and productivity remain the same. This is
because more workers will be sharing their wages with fewer dependents,
boosting average per capita income.
The research provides insight upon the
factors which effect the economic growth of a country. This review shows that
government policy effect the performance of economic growth. The above research
shows that over the time GDP, literacy rate and expenditure on health and
education shows business cycle trend either crust or turf. In the beginning we
see an increasing trend than decreasing trend showing us that there political instability
and terrorism in country effect the economic environment. The above result
shows that government is non-serious towards the health and education
expenditure over the time.
Government in future should invest in
education and health to enhance further growth.it should invest in female’s
education and in new technologies which will generate new ideas. Generally, public polices
seem to be a complicated issue; therefore, future research must focus on
regimes in the policy sector and also on the interactions between policies as
opposed to the independent effect of any particular policy.