Human Capital and its Impact on Ethiopian Economic Growth: ARDL Approach to Co-integration

Hinsene Lemma Wegari, Sisay Tolla Whakeshum, Negese Tamirat Mulatu
International Journal of Finance, Insurance and Risk Management, Volume 12, Issue 4, 78-100, 2022
DOI: 10.35808/ijfirm/336


Purpose: Maintaining human capital at an optimal level is among the important mechanism for ensuring steady economic growth This study aims to examine the impact of human capital on Ethiopia's economic growth Design/Methodology/Approach: The study used the ARDL model applying annual data for the period 1980 to 2020. The ARDL-bounds test was used to evaluate the presence of con-integration between human capital and independent variables. The study also applied augmented Dickey-Fuller and Phillips-Perron unit root tests to check the Stationarity of the variables. Findings: The test result presented that almost all variables become stationary after the first difference. Accordingly, the result from the bound test indicated the existence of a long-run relationship between the dependent variable and independent variables entered into the model. Practical Implications: The estimated error correction model with a -0.9528 coefficient also confirmed the existence of co-integration with a high speed of adjustment towards the long-run equilibrium. In the long-run real GDP, education expenditure, health expenditure, labor force, gross capital formation, total government expenditure, official development assistance, secondary school enrolment, consumer price index, drought, and policy change have a stable long-run connection. Originality/Value: The finding indicates an increasing ratio of health expenditure and secondary school enrolment should be designed among others to contain improved human capital in Ethiopia.

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