Capital and its Factors (Education and Gender)Role in Economic Growth Chapter 1 IntroductionBeforediscussion on development, one should know its component; called economicgrowth.
Economic growth is a key variable that measure all economic activitiesin an economy. It can be defined as “increase in the value of goods andservices by an economy at market value over time”. It is also defined asincrease in the productivity capacity over time in a specific country. Fordeveloping countries striking decrease in the level of economic growth is a problem.As many social evils are link with low level of economic growth for exampleunemployment, suicides, crimes, and poverty rates. Human capitalis the most important determinant of economic structure.
It determines theproductivity of the economic growth and development at different sectors. Italso exposes the development of social norms as the defining projection of thehuman capital can portrays in different scenario, but the most projected stateof the human can be said that the abilities and skill of the masses are calledhuman capital. It has very positive effects on economic growth and economicdevelopment, increase in the human capital will leads to reduce in the mistakesand to improve plans and modalities of the people. It also orients effects onthe unemployment. Human capital is a best instrument to increase economicgrowth at country level.
Human capital is considered to be an activefactor of production while the natural resources and capital are the slowfactors. Anything for economic growth can never being done until we increasethe skills of human beings so in order to utilize the other resourcesefficiently we have to increase the mental and physical capacity of people throughliteracy and by increasing their skills abilities in this way we can decreasesthe unemployment and moves the economy towards economic growth. There are twomajor determinants of human capital such as education and health. Education isa key factor to promote the efficiency and capabilities of the person.
It isthat factor which affects the whole sector of the economy. Human capital canalso be defines as “abilities and skills of person.” It is observed fromdifferent researches of economist that higher education plays a significantrole towards economic growth. The education increases the skills of the peopleand provides more chances for job.
There is strong link between the educationlevel and economic growth level in a country. When people invest in theireducations as a result they increase their employment opportunity and then byincreasing employment opportunities they are able to earn more, reduce thepoverty rate of a country, increases their living standard and at the end allthese factors leads to enhance the economic growth level. The rate of returntowards education and economic growth is likely to have positive relation witheach other. In Pakistan itis regretting to say that just 1.56 percent budget spends on education sectorin 2010.Similarly health also contributes towards economic growthHealth has alsosignificant impact on economic growth of a country. Healthy workers are moreefficient and more productive.
Healthy and physically fit workers increase theaggregate supply of the country that increases exports in the long run,increase income per capita, improve living standard of people and reduceun-employment and all these factors promote economic growth of the country.Additional amount on health should be spent by the Government to increase theproductivity of the workers so that they are able to work more efficiently.Expected lifeof the people is also the important factor of human capital. Health, physicalfitness and maximum experience of the peoples are indicating by the high lifeexpectancy. The expected life of the people plays a significant role in reducingunemployment. The current expected life in Pakistan is 66 years (World Bankreport).
The experienced persons do their work more efficiently and there ischance of doing less mistakes or no mistakes. So as the experience of thepeople increases the rate of unemployment tend to decrease. So there isnegative relationship between experience and rate of unemployment. As the lifeexpectance of the people’s increases by providing them good health facilitiesthe experience of the people also increases and they will be work moreprofessionally. Objectiveof the StudyThe basicpurpose of study is to find out the association among economic growth andfactors of human capital in Pakistan. And also compare the gender wiseeducation level and also role government in determining it. CHAPTER 2 Literature ReviewAs thisresearch is basically conducted to see the impact of human capital and its factorson economic growth, either human capital is affecting positively or negativelyand the role of public investment. To see the relationship between humancapital and economic growth many economists do researches in order to find theimpact of human capital on economic growth in different countries.
So the humancapital includes literacy rate, enrollment rate, health facilities . Following are some researches which are discussed below,Sarwar (2013)investigated the role of human capital formation on economic growth level ofPakistan for the time period 1973 to 2012 by using secondary data source.Johansen co integration approach is applied to investigate the long runrelationship between dependent and independent variables. Result of study confirmsthat capital formation have highly positive and significant impact overeconomic growth of Pakistan. Qadri andWaheed (2011) applied Cobb Douglas production function to examine therelationship between human capital and economic growth using time series datafrom period of (1978 to 2008).
Finallyresult shows that human capital and economic growth are positively correlatedwith each other. Other economists Asghar and Asma (2011) determine therelationship between human capital and economic growth of Pakistan. They used”Johnsenco integration test” in order to check the short run and longrun relationship among the variables. According to them human Capital andeconomic growth are strongly linked with each other, so to ensure economicgrowth in the country, Pakistan has to invest more in health and educationservices.Akram (2008)estimates the long run relation between health status and economic growth.Study concludes that health status is helpful to increase the economic growthby increasing the productivity and efficiency level of humans that will notonly increase their per capita income but also increase the aggregate growthlevel of the country.
Abbas (2008) explains the relationship between humancapital and economic growth in Pakistan with aggregate time series data.Approximated Johansen approach and the study tell that human capital plays animportant role in economic growth. High expenditure on health and education arevery favorable to industrial as the marginal productivity of worker increased.Since in 1990s in Pakistan the effect of human capital represents a negativeimpact on economic growth because human capital policies are underprovided.
Abbas (2001)examined the long run relationship between human capital and economic growth oftwo developing countries Srilanka and Pakistan. Education and health are usedas factors of human capital and gross domestic product (GDP) used as adependent variable to investigate the effect of human capital on economicgrowth. Result of the study indicates that human capital factors aresignificantly contributed to economic growth of developing countries.The impact ofhuman capital on economic growth was observed by comparing two countries i.e.
Pakistan and India by Abbas (2000) utilizing data from 1970 to 1994, the OLSmethod is applied. Different proxies such as primary education, secondaryeducation and higher education were used for this purpose. Different resultsobtained by using different proxies. Result shows that primary education ispositive correlated in case of India while in case of Pakistan higher educationis positively correlated whereas Secondary education is positively related incase of both countries India as well as Pakistan.0ver the lastdecades fiscal policy have an important role in economic growth. Publicinvestment polices related to privet sector have keen impact over thecountries. Government should adopt such policies which helps the human capitalto grow.
Basedon recent literature, human capital also plays an emphasized role in economicdevelopment. More specifically, either educational quality or quantity seems tobe major determinants of economic growth, whereas in the existing economicgrowth models, human and physical capital conduct a major role. Surveysidentified the productive contribution of infrastructure components and humancapital of public capital on per capita income growth. There are two differentchannels through which a higher human capital generates higher economic growth:firstly, through facilitating the absorption of advanced technologies fromadvanced economies. Additionally, human capital tends to be less easilyadjustable than physical capital within the countries. Nonetheless, the proxyvariables of enrolment-ratios and average years of schooling measure only thequantity of human capital. Thereafter, they are not perfect measures of theeducational component of human capital. That is the reason why many recentstudies use international data of schooling quality such as tests scores,pupils-teacher ratio, repetition rates, and dropout rates.
In other studies,the effects that government expenditures on education and health have oneconomic growth are being investigated. Whereas these measures may not beperfect for productive expenditures (there is a different impact on economicgrowth when governments invest on building school-houses or hospitals and whenthey pay wages on public employees), it has been noted that public healthexpenditures improve citizens’ health, while education expenditures promotecost efficiency and meliorate skilful personnel.Inthe same category of productive government expenditures with a direct effect ongrowth rate is public capital. Public capital has a direct effect on subsequentgrowth through the enhancement of private capital accumulation.
For theimprovement of the standards of living as well as long lasting growth, bothpublic and private capital accumulation are a necessary condition.Particularly, long-run growth is affected positively by infrastructurecomponents of public capital, the quality of public capital (paved roads,telecommunication services, and ports), and the relationship between privateand public capital matters for the economic growth. For instance, good marginalproductivity is increased by institutions and access to international creditmarkets, leading to an increase in economic growth which is also achieved bytechnology spill overs and learning-by-doing factors. CHAPTER 3 DATAVARIALES AND METHODOLOGYIn this chapterthe different variables are analyzed under the descriptive purposes, and sourceof data will be discussed.
For examining the role of education and gender onthe economic development we will analyzed the following variables fordescriptive purposes. GDP growth Rate Literacy Rate Development Life Expectancy Expenditure on the Literacy Expenditure on the Health Primary School Education Gender Wise Middle School High School Higher SecondaryCollege Sources of DataTo analyzingthe impact of human capital on Economic growth of Pakistan we using thesecondary data of twenty-four years which is taken from Economic Survey ofPakistan, and the World data Bank. GraphicalAnalysis GDP growth: Figure 01: GDP growth rate (%) *Source: World Development IndicatorThis graph showsthe fluctuation in GDP growth rate. It shows the increasing trend but alsodecrease at 1991, 1997, 2001, 2007 But now a days it start increasing thedecreasing trend in GDP growth is due to terrorism, instability in governmentand unfavorable government policies, which result unfavorable environment foreconomic activities.Literacy rate:Figure 02: *Source: World Development Indicator Literacy rate areshowing constant trend in the starting years but after 1987 it is showingincreasing trend and in year 2007 there is a great increase in the literacyrate, showings that the people are moving towards education. Life Expectancy:Figure 03: *Source: WorldDevelopment IndicatorThis graph alsoshows the increasing trend it means that the facilities given to the people aregood quality in the health sector that’s why life expectancy of the people isincreasing.Expenditure on Education:Figure 04: *Source: World Development Indicator This graphexplains the tendency of government expenditure on education.
This graph showsthe constant between 2 to 3. From the graph we can conclude that the governmentdoes not put its importance toward the education.Expenditure onHealth:Figure 05 *Source: World Development IndicatorThis graph showsthe trend of health expenditure remains constant.
And it can be observed thatGovernment increases the expenditure on health sector during Musharraf’sregime. But it shows the decline in the graph due to the political instabilityin the country and also due to less management in the government sector andalso due to the trend of corruption in the whole country. DescriptiveAnalysis:The table whichis shown below explains the descriptive statistics of variables belong todevelopment side.Table 01 Descriptive Statistics EE GR HE LE LR Mean 2.486732 4.
073398 2.785229 63.44274 48.84800 Median 2.559400 4.260088 2.703924 63.
45834 51.60000 Maximum 3.022300 7.705898 3.401686 66.37698 58.
00000 Minimum 1.837820 1.014396 2.
503630 60.39622 34.90000 Std.
Dev. 0.288772 1.866263 0.253046 1.817012 7.
854994 Skewness -0.362466 0.364934 1.200385 -0.011906 -0.
516545 Kurtosis 2.747346 2.493745 3.
450434 1.860347 1.809366 Jarque-Bera 0.613918 0.821878 6.215194 1.
353516 2.588423 Probability 0.735681 0.663027 0.044708 0.508262 0.
274114 Sum 62.16831 101.8350 69.63071 1586.069 1221.200 Sum Sq. Dev.
2.001346 83.59050 1.536777 79.23682 1480.822 25 25 25 25 25 *Source: World Development IndicatorWhereas, EE=Expenditure on education, GR=GDP growthrate, HE=Expenditure on the health, LE=Life expectancy and LR=Literacy rate.
The data containstwenty five of annual observations from period of 1991 to 2015. The descriptivestatistics tells that the average of growth of gross domestic product is 4.073398with standard deviation of 1.866263. Whereasthe average of education expenditure is with standard deviation of and theminimum expenditure on education is 1.
837820 and the maximum expenditure oneducation is 3.022%.The maximumexpenditure on heath by Government is 3.
401686 % while the minimum expenditureon health is 2.503630 % and the average of health expenditure is 2.785229 withstandard deviation of 0.253046. The maximum life expectancy in Pakistan is66.37698 while the minimum life expectancy is 60.39622 and the average is 63.
44274withstandard deviation is 1.817012. The minimumliteracy rate in Pakistan is 34.90000 while the maximum literacy rate is 58 and the average of literacy rate is 48.84800 with standard deviation of 7.
854994.Kurtosisstatistics of variables shows that the life expectancy and literature rate areplatykurtic (flat and short tail) and the other variables are leptokurtic (longtail and higher peak).Education Gender WiseWe cannotignore the role of women in the field of social development, and we can’tignore her contributions. These contributions will be fruitful if we educatethem. In this context we will analyzes the difference in education of bothgenders.
For our simple analysis we will analyze the primary, middle, high andhigher secondary of both genders. Primary Schooling: Figure 06 Primary School: Numbers of students in “000” *Source: State Bank of Pakistan:Annual publications In the abovefigure in the initial periods the difference of education in both gender ishigh, but as time passes the difference reduced better one in 2015. From theabove scenario we can concluded that neither parents nor government interestedto emphasized for educating women at primary level within the one and halfdecade. Middle Schooling:Figure 07 Middle Schools: Numbers ofstudents “000” *Source: StateBank of Pakistan: Annual publicationsIn the middleschool the scenario is totally different from primary level. Still the male hasdominated numbers than female, but their difference is negligible. If weanalyze the trend over the time we can estimate that in coming five to tenyears the female will be more than male at the middle school level. HighSchooling:Figure 08 High School: Numbers ofstudent in “000” *Source: State Bank of Pakistan: AnnualpublicationsIn the context ofhigh school, the trend of both genders increases over the time. The differencein the gender level remains stable through one and half decade.
Over all theirattainment at high school remains increasing. Higher secondary colleges:Figure 09:Higher secondary Colleges: No of students *Source: State Bankof Pakistan: Annual publicationsIn the abovefigure same scenario can be observed as observed in the middle schooling. Trendof both genders increasing over the time. And the difference in their educationattainment level observes smaller over the time. Lower genderinequality in education means higher female education at each level of maleeducation.
Because female education is believed to have positive externaleffects on the quantity and quality of education for educated women’s children(through the support and general environment that educated mothers canprovide), lower gender inequality would therefore improve the human capital ofthe next generation, which should also promote economic growth (World Bank2001). There is an overwhelmingevidence that higher female education, which would obtain as a result of lowergender inequality in education, reduces fertility rates. Lower fertility couldaffect economic growth in four different ways. First, lower fertility reducespopulation growth and thus facilitates investment’s being used for capitaldeepening (more capital per worker) rather than capital widening (equipping newworkers with capital), which would promote economic growth. Second, reducedfertility lowers the dependency burden, increasing savings rates in an economy,which would increase growth. Third, lower fertility will, for a limited periodof time, increase the share of workers in the population.
When a large numberof workers enter the labor force as a result of previously high populationgrowth, it increases the demand for investment in capital equipment and socialoverhead (such as housing). If this higher demand is met by increased domesticsavings (as a result of the reduced dependency burden), increased capital inflows,or both, investment will expand— which should boost growth. Fourth, if growthin the labor force is absorbed through increased employment, per capitaeconomic growth will rise even if wages and productivity remain the same.
Thisis because more workers will be sharing their wages with fewer dependents,boosting average per capita income. Conclusion:The researchprovides insight upon the factors which effect the economic growth of acountry. This review shows that government policy effect the performance ofeconomic growth.
The above research shows that over the time GDP, literacy rateand expenditure on health and education shows business cycle trend either crustor turf. In the beginning we see an increasing trend than decreasing trendshowing us that there political instability and terrorism in country effect theeconomic environment. The above result shows that government is non-serioustowards the health and education expenditure over the time.Government infuture should invest in education and health to enhance further growth.itshould invest in female’s education and in new technologies which will generatenew ideas.
Generally, publicpolices seem to be a complicated issue; therefore, future research must focuson regimes in the policy sector and also on the interactions between policiesas opposed to the independent effect of any particular policy.