THE IMPACT OF EDUCATION AND HEALTH ON ECONOMIC GROWTH: AN ECONOMETRIC STUDY OF PAKISTAN (1970-2010)

Abstract

Education and health are the two important components of human capital. Education is a powerful instrument in reducing poverty, enhancing earnings, economic growth, empowering people, and promoting a healthy and flexible environment and creating competitive economy. It plays an important role in shaping the ways to become skilled and handle with the complexities of economic growth by the future generations. On the other hand health is a basic and key ingredient of human capital and an important determinant of economic growth. The main objective of this study was to examine the impact of education and health on the economic growth of Pakistan, using time series data from 1970-2010. To achieve this objective, the study was completed in different phases. In the first phase, a comprehensive literature review was carried out using standard sources and tools for the better understanding of theoretical and emperical aspects of the study. In the second phase secondary data were collected from the State Bank of Pakistan and World Development Indicators. A total of eight variables was selected for the study i.e. public spending on education and health, enrollment at primary, secondary and tertiary level, life expectancy and infant mortality rate. The collected data for these variables was analyzed using computer software EViews version 5. During data analysis different econometric techniques were applied to examine the stationarity of data and long run and the short run relationship between education, health and economic growth. For stationarity, long run and short run relationship Augmented Dickey Fuller (ADF) and Philips Perron (PP) tests, Engle Granger two step procedure, Auto Regressive Distributive Lags (ARDL) and Error Correction Mechanism (ECM) were used respectively. The validity of ARDL and ECM models was checked by Auto Correlation, Heteroscedasticity, Auto Regressive Conditional Heteroscedasticity, and parameter stablity tests. The results of these tests confirmed that these models are best fitted. The findings of Augmented Dickey Fuller and Philips Perron tests show that all variable are unit root at level and stationary at first difference or co-integrated of order one. The results of Engle Granger two step procedure and ARDL tests confirmed that education, health and economic growth have a long run relationship whereas, Error iiCorrection Mechanism also confirmed their short run relationship. The results of linear regression show that education and health have a positive and significant impact on the economic growth of Pakistan. This study also found that education; health and economic growth are co-integrated and have a long run relationship. Health and education play a major and important role in determining the long run economic growth of Pakistan. The study confirmed that if government increases budget for education and health, more people will be educated which will result in more educated workers and resultantly more production. Similarly, it will also have a good impact on the health of the general public. The study suggests that the government of Pakistan should consider education and health sectors while formulating policies and must allocate sufficient budget for them.