Abstract:
The general objective of this study was to analyze the impact of human capital development on economic
growth in Ethiopia using real GDP as a proxy for economic growth and govn’t expenditure on
education and on health as proxied human capital investment. In addition human capital stock
variables such as: life expectancy, primary school enrolment and secondary school enrolment were used
over the period 1974 -2018. Time series data was collected from NBE, MoFED, MoE and World Bank
Data sets. The econometric models of Johnesan co integration, VECM and causality tests were applied
to analysis short run and long run impact of Human capital on Economic growth by using statistical
package Eview 10. The result shows that all variables are non-stationary at level (I (0)) and stationary
at I (1). The result of the error correction model show that the model is adjusting at a relatively stable
rate of 74.3% towards the long run equilibrium. Furthermore, the result shows that human capital
proxied of (primary and secondary school enrolments) and active labor force have positive statistical
significant long run and short run effect on economic growth in Ethiopia. The economic performance
can be improved significantly when the human capital stock of primary and secondary school enrolment
and active labor force of population improves and increase. Such findings are consistent with the
endogenous growth theories which argue that an improvement in human capital (skilled workers)
improves productivity. In addition, results reveal that education expenditure and life expectancy at birth
have positive and statistically significant long run effect on economic growth. However, the expenditure
on health, secondary school enrolment and official development assistance are statically significant and
have unexpected negative impact on long run economic growth. Furthermore, the short run causality
tests results reveals that public expenditure on education, primary school enrolment, secondary school
enrolment and RGDP have unidirectional causal effects. Generally, human capital development or
improvements have a large impact on human productivity which leads to improved national output per
capita. Hence policy makers and/or the government give prioritize to create institutional capacity that
increase school enrolment and strengthening the infrastructure or investment of educational and health
institutions that produce quality of manpower to increase productivity.
