"Impact of Human Capital on Economic Growth in Ethiopia: A Time Series Analysis’’

Abstract

The study's primary goal was to look into the impact of human capital on the economic growth of Ethiopia from 1980 to 2020. To explore the long run and short-run impact of human capital on economic growth, ARDL Approach to co-integration and error correction model was used. The Bounds test results reveal that real GDP, health expenditure and gross capital formation have long-run connection. The finding shows significant positive impact of human capital on economic growth by confirming direct positive relationship between economic growth and measures of human capital (gross capital formation and health). The estimated long-run model reveals that health expenditure is the most significant contributor to real GDP growth, followed by gross capital formation. In the short-run, the finding reveals that primary school enrolment is the main contributor to real GDP change followed by gross capital formation and education expenditure. Health has no significant short-run impact on the economy. But its one-period lag has a significant and positive impact on the economy. The findings mentioned above have significant policy implications. This study suggests that increasing the ratio of gross capital formation to GDP and increasing primary school enrollment can significantly boost economic performance. Such improvements have a significant impact on human productivity, resulting in increased national output. By developing the infrastructure of educational and health institutions that produce quality human resources, the government should endeavor to establish institutional capacity that increases school enrollment and improves primary human health. In addition, the government should maintain its leadership role in establishing an enabling climate that encourages private sector investment in human capital (education and health).