Abstract:
Human capital development is essential for driving economic growth, fostering innovation, promoting adaptability, reducing unemployment and poverty, ensuring long-term stability, and promoting social equity. But, a failure of human capital development bears consequences on economy at wide level. With this understanding, the researcher undertakes a study with the primary aim of investigating the influence of human capital development on Ethiopia's economic growth throughout a 31-year period spanning from 1991 to 2022. To analysis the long-run and short-run impact of human capital development on economic growth, the study applies ARDL Approach and error correction model (ECM). The Bounds test results reveal that Real GDP, education expenditure, health expenditure and school enrollment have a stable long-run association. Besides the long run result shows that there are positive and significant impacts of education expenditure, health expenditure, labor force and public investment on economic growth while gross capital formation is negative and statistically significant affect economic growth. Except positive impact of school enrollment on economic growth in short run, the short run coefficients of the other variables are similar with long run result. The estimated long-run model result reveals that labor force is the most significant contributor to real GDP growth, followed by health expenditure and education expenditure. The short run results also show that there is high speed of adjustment to equilibrium from disequilibrium in a year and evidence for existence of a stable long run relationship among the variables. Consistency with the results of long run and short run, the Granger causality test also show that an increased inflow of the proxy of human capital development (education expenditure, health expenditure, school enrolment) and labor force are the cause for the economic growth change. Based on the result, the researcher recommends that, policymakers and the government should prioritize investments in education, healthcare, labor force development, and public infrastructure to foster sustained economic growth. In addition, the government should also focus on streamlining regulations to reduce barriers to investment, investing in critical infrastructure projects to improve productivity and to bring economic growth
