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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS
JUNE 2011
VOL 3, NO 2
AN ECONOMETRIC ANALYSIS OF THE RELATIONSHIP BETWEEN
EDUCATION AND ECONOMIC GROWTH IN PAKISTAN
Nabeela Asghar
M. Phil. Student in Economics at
University of Sargodha, Sargodha (Pakistan)
Masood Sarwar Awan
Assistant Professor in Economics at
University of Sargodha, Sargodha (Pakistan)
Hafeez ur Rehman(Corresponding author)
Associate Professor/Chairman, Department of Economics
University of the Punjab, Lahore-54590 (Pakistan)
Abstract
The main objective of this study was to investigate the nature of relationship between
expenditure on education and economic growth for the period 1972 to 2008 for Pakistan. By
employing recent advances in dynamic modeling, the findings of this study suggest there is a
unidirectional causality running from GDP growth to educational expenditure in Pakistan. There
is no evidence of causation running from educational expenditure to GDP growth, which is an
indication, that education sector failed to contribute to the GDP because this sector was badly
neglected in the past. The implication of this study is that for achieving sustainable economic
growth, Government of Pakistan needs to allocate sufficient resources to education sector in
future.
Key words: Education, Economic growth, Cointegration, Granger causality
I. Introduction
In recent years Human Capital (HC) has been regarded as one of the crucial determinants
of sustainable economic growth. It has been observed that deficiency in human capital is a major
hurdle in the way of rapid economic growth and poverty reduction. Furthermore, the process of
economic development will be slower in that country which cannot utilize its human resources
properly along with other resources. Endogenous growth theory provides the theoretical basis for
the relationship between education and economic growth. The theory explains the role of human
capital (stock of knowledge, skills, aptitudes, education and training) in enhancing the economic
growth. It has also been observed that high level of human capital does not directly serve as one
of the factors of production. It raises the output by raising efficiency of the labour force though
innovations and inventories. In short, human capital directly or indirectly serves as one of the
factors that affect economic growth.
The positive and significant contribution of Human Capital through educational
development towards economic growth is being well recognized. 56 Education enhances both the
labour efficiency and productivity that leads towards more output and has more economic
growth. Promotion of education especially higher education by promoting research activities is
the main focus of every development strategy in recent years. 57 This implies that productivity
56 For details, see Romer (1986, 1989, 1990) Lucas (1988) Ouah & Ranch (1991) Brossman and Helpman (1991)
Ravera Batiz and Romer (1991)
57 For detail see stern (2001)
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