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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS<br />

JUNE 2011<br />

VOL 3, NO 2<br />

Impact of human capital expenditures on economic growth of provinces in Iran by means<br />

of panel data (2001-2007)<br />

Rahim Dalali Isfahani<br />

Associate Professor of Economics from Isfahan University<br />

Rahman Khosh Akhlagh<br />

Professor of Economics from Isfahan University<br />

Mahyar Shabaninejad Masouleh<br />

M.A of economic development and planning from Isfahan University<br />

Department of Economics, Isfahan University, Hezar-jarib Ave, Isfahan<br />

Atefeh Nemati<br />

M.A of Economics from Isfahan University<br />

Abstract<br />

This survey studies the impact of human capital on economic growth of provinces in Iran. According to Mankiw-<br />

Romer-Weil model (1992) through Cobb-Douglas production function and by means of panel data in this survey we<br />

have studied effectiveness level of two indexes of human capital, i.e. educational expenditures and health care<br />

expenditures on gross domestic product growth of the provinces in Iran during the time period 2001-2007. Results<br />

reveal that impact of health care expenditures on economic growth is higher than educational expenditures. After<br />

inserting of mutual impact variable (product of two previous indexes) its coefficient becomes positive and<br />

significant. Mutual impact shows that one percent of growth in educational and health care expenditures<br />

simultaneously is leaded to 0.09 percent growth of gross domestic product. Granger causality test illustrates a single<br />

way relation from health care expenditures to educational expenditures. This issue specifies that health of human<br />

forces has a direct impact on human capital accumulation (gaining of education and skills) in addition to production<br />

and income, since necessity of learning education and skills is to have physical health.<br />

Key words: economic growth, human capital, panel data, endogenous growth<br />

1. Introduction<br />

During the first years of the 1950's it was imagined that the main reason of underdevelopment and inadequacy of the<br />

developing countries was resulted from lack of physical and material capital. Experimental studies of researchers<br />

reached to a deadlock in the 1960's so that they were not able to explain the remaining of economic growth<br />

explanation by the labor force and physical capital and on the other hand they couldn't analyze incomes distribution<br />

accurately. The observed growth in time series statistics with conventional measurements of the work factor and the<br />

applied physical capital in production of the United States of America and other developed countries in that time<br />

were by far lower than the real growth of national economy. On the other side, published data about personal income<br />

distribution demonstrated high difference of the labor force that was mainly related to inequality in personal<br />

incomes. It was in this period that human capital theory could explain the cause of the above two problems. The<br />

COPY RIGHT © 2011 Institute of Interdisciplinary Business Research 172

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