The topic of the research is Human Capital and Economic Growth of Ethiopia. The research answered questions such as “does human capital contribute to economic growth of Ethiopia?” with major objective to analyze the short run and long run effect of human capital on economic growth of Ethiopia over 1971 to 2013 using both ordinary least square (OLS) econometric and descriptive methods of data analysis. The data used for the research is secondary time series data collected by the National Bank of Ethiopia over the years 1971 to 2013. Nominal GDP is used as dependent and proxy variable for Economic growth while independent variables are physical capital, active labor force, terms of trade for measure of openness, government expenditure and human capital in the form of expenditure on health and education. Accordingly, the empirical finding shows that human capital in the form of education and health investment has consistent and significant long run effect on economic growth of Ethiopia at 5% level of significance. Keeping the other variables constant, 1% change (increase/decrease) in expenditure in human capital will change (increase/decrease) nominal output by 0.23%. In contrary short run human capital has consistent but insignificant effect on economic growth of Ethiopia. Because, either it takes time for education investment to pay off or the government’s budget for short run education and health sector development is not sufficient. The adjustment of the short run dynamics or disequilibrium to the long run equilibrium is weak, which is 36%. Thus, education and sectors ought to allocate resources for both quality of and access so that the benefit from human capital development outshines in contribution to economic growth. The sectoral contribution of human capital to Ethiopian economic growth may be future research.
Table of Contents
1. Introduction
1.1. Background of the study
1.2. Statement of the Problem
1.3. Research Questions
1.4. General Objective
1.4.1. Specific Objectives
1.5. Significance of the study
1.6. Scope and Limitation
2. Research Design and Methodology
2.1. Description of the Study Area
2.2. Type and Source of Data
2.3. Variable Selection and Definition
2.4. Hypothesis
2.5. Methods of Data Analyses
2.6. Model Specification
2.7. The Error Correction Model
2.8. Diagnostic Tests
2.8.1. Test of Stationary
2.8.2. Co-integration Test
2.8.3. Causality Test
3. Descriptive Analysis of Human Capital Formation and Economic Growth in Ethiopia
3.1. Education as Human Capital
3.2. Health as Human Capital
3.3. Education, Health and Nominal GDP
4. Empirical Analysis
4.1. Diagnostic Tests
4.1.1. Stationarity Test
4.1.1.1. Graphical Method
4.1.1.2. A Unit Root Test of Stationarity
4.1.2. Co-integration Test
4.1.3. Testing for serial correlation
4.1.4. Causality test
4.2. Static Log Run Analysis
4.3. Dynamic Analysis
5. Summary, Conclusion and Policy Recommendation
5.1. Summary
5.2. Conclusion
5.3. Policy Recommendations
Research Objectives & Key Themes
The primary objective of this research is to analyze the short-run and long-run effects of human capital—proxied by government expenditure on education and health—on the economic growth of Ethiopia over the period from 1971 to 2013, using OLS econometric methods and time series data.
- Analysis of human capital impact on economic growth in both short and long terms.
- Investigation of secondary time series data from the National Bank of Ethiopia.
- Evaluation of control variables including physical capital, active labor force, and terms of trade.
- Application of Error Correction Models (ECM) to address stationarity and long-run equilibrium.
- Formulation of evidence-based policy recommendations to enhance human capital contribution.
Excerpt from the Book
1.1. Background of the study
The concept of human capital refers to the abilities and skills of human resources of a country, while human capital formation refers to the process of acquiring and increasing the number of people who have the skills, good health, education and experience that are critical for economic growth. Different scholars such as Beach (2009), Garavan et al.(2001) and Youndt et al.(2004) define human capital as productive capacities knowledge and skills imputed or embedded in human being. Education either formal or informal helps to acquire the human capital. This knowledge and skills can be built intentionally from investment in education or unintentionally from the environment (social dimension).
The origin of human capital goes back to the emergence of classical economics in 1776, and thereafter developed to a scientific theory (Fitzsimons, 1999). Classical economists, such as Adam Smith (1776), David Ricardo (1817), and Thomas Malthus (1798), and much later, Frank Ramsey (1928), Allyn Young (1928), Frank Knight (1944), and Joseph Schumpeter (1934) as cited by Barro and Sala-i-Martin, 2004, p.35 provided many of the basic ingredients that appear in modern theories of economic growth
Summary of Chapters
1. Introduction: This chapter introduces the theoretical concepts of human capital, outlines the historical context of education in Ethiopia, and presents the problem statement and research objectives.
2. Research Design and Methodology: This section details the geographical and economic context of the study, explains the data sources, defines the variables used, and outlines the econometric models and diagnostic tests employed.
3. Descriptive Analysis of Human Capital Formation and Economic Growth in Ethiopia: This chapter provides a descriptive overview of the historical trends in education and health expenditure and their relationship with economic performance in Ethiopia.
4. Empirical Analysis: This section performs diagnostic tests for stationarity, serial correlation, and causality, followed by static long-run and dynamic error correction model estimations.
5. Summary, Conclusion and Policy Recommendation: This chapter synthesizes the research findings, concludes on the long-term significance of human capital for Ethiopian growth, and suggests policy directions for government investment.
Keywords
Economic growth, Human capital, Ordinary least square method, Error correction model, Time series data, Ethiopia, Education expenditure, Health investment, Physical capital, Active labor force, Terms of trade, Macroeconomics, Econometrics, Sustainable development, Human development index
Frequently Asked Questions
What is the primary focus of this research?
The study focuses on evaluating the impact of human capital, measured through government expenditure on education and health, on the economic growth of Ethiopia from 1971 to 2013.
What are the central themes discussed in the work?
The work centers on the relationship between public investment in human capital (education and health) and nominal GDP, while also considering physical capital, labor force dynamics, and trade openness.
What is the main research objective?
The primary goal is to determine whether human capital significantly influences economic growth in both the short run and the long run using an econometric framework.
Which scientific methods are employed?
The research uses Ordinary Least Square (OLS) regression, augmented Solow models, and Error Correction Models (ECM) to analyze time series data and ensure robust findings.
What is covered in the main body of the work?
The main body covers the theoretical background, descriptive statistics of Ethiopian economic indicators, rigorous diagnostic testing (stationarity, co-integration), and empirical regression analysis.
Which keywords best characterize this work?
Key terms include Economic growth, Human capital, Error correction model, Ethiopia, Time series data, and Econometric analysis.
How does human capital impact the long-run economy of Ethiopia?
The empirical findings indicate that human capital has a consistent and significant positive long-run effect on economic growth, where a 1% increase in human capital investment changes nominal output by approximately 0.23%.
Why is the short-run effect of human capital found to be insignificant?
The research suggests this is likely because investments in education and health require time to manifest as productive capacities, or because current short-run budget allocations are insufficient.
What role does the 'Terms of Trade' (TOT) play in the model?
The study finds that TOT has a negative and significant relationship with output, reflecting Ethiopia's reliance on imports and the structural challenges of its trade balance.
What is the significance of the Error Correction Model (ECM) result?
The ECM result confirms that approximately 36% of disequilibrium is corrected within one year, demonstrating how the short-run dynamics adjust back to the long-run equilibrium.
- Arbeit zitieren
- Mulugeta Tefera (Autor:in), 2014, Human Capital and Economic Growth in Ethiopia, München, GRIN Verlag, https://www.grin.com/document/295755
