New Evidence on the Effect of Human Capital on Economic Growth of Pakistan

Abstract

The importance of human capital in the wealth of developed countries has increased significantly as it has transitioned from being a mere cost component to becoming the primary factor contributing to economic growth and societal development. This study attempts to assess Pakistan's human capital-led growth between 1973 and 2021. This has been accomplished by using a human capital index based on years of education, returns to education, and economic growth to ascertain the link in the long run and short run, the Auto Regressive Distributive Lagged (ARDL) co-integration methodology and error correction methods are utilized in this context. The model's stability is examined using CUSUMSQ and CUSUM. The results demonstrated that the human capital index has a significant and positive effect on economic growth over the long term, but it has a detrimental impact in the short term. Capital accumulation, population growth, and foreign direct investment have positive, long-term effects on GDP per capita. As human capital is an important factor in economic development. Therefore government should invest more in promoting more human capital.