An Econometric Analysis of Human Capital Development and Economic Growth in Bangladesh

Abstract

The paper has explored empirically the relationship between human capital development and economic growth in Bangladesh. Human capital is a significant factor employed in transferring all resources to mankind’s use and advantage. Economists studied that the development and employment of human capital is essential in a nation’s economic growth. However, the illiteracy rate in Bangladesh is 29% still high compared to others SAARC country and many workers are unskilled, leading to their low productivity; consequently, this study gives an idea about the significance of human capital development to the growth of the economy. To investigate the relationship between human capital development and economic growth in Bangladesh, this study uses the gross domestic product (GDP) as proxy for economic growth, total government expenditure on education and health, and the enrolment pattern of tertiary education, secondary and primary schools as proxy for human capital. Since the data of the variables are based on annual time series data covering the periods 1981-2014, this study is an attempt to investigate the long run, short run and casual relationship among the variables by applying recent advantages in econometric methods such as cointegration and error correction mechanism. Unit root test results show that the variables are integrated of order one and positive long run relationship between human capital development and economic growth is confirmed by cointegration test result. The short run adjustment of the variables identified from the error correction mechanism. The entire result suggest that human capital development makes a significant contribution to economic growth. Thus stakeholders need to go forward a more realistic means of developing the human capabilities, since it is seen as a vital apparatus for economic growth in Bangladesh.

Keywords: Human Capital Development, Economic Growth, Cointegration, Error Correction Mechanism (ECM), Bangladesh.