The Effect of Education as a Component of Human Capital on Economic Growth: A Panel VAR Analysis

1Ministry of National Education, TURKEY.
2Gazi University, TURKEY.
DOI: 10.14689/ejer.2021.93.7


Purpose: Studies of human capital and economic growth were initially focused on labour and physical capital, but it was later recognised that factors such as education, health, and technology also affected this relationship. The present study aims to examine the effects of education, health, and innovation/technology, as the components of human capital, on economic growth.

Method: This study brings together different indicators of education, health, and innovation/technology to calculate index values for the 1999–2015 period, using data on 31 developed and developing economies. It prefers to adopt a holistic approach, making use of an index that brings together multiple variables used in the literature rather than the ‘best/most appropriate’ proxy variable, in order to avoid a ‘narrowing’ of the human capital goals. These values were used to examine the relationship between human capital and economic growth.

Findings: It was found that education, health, and innovation/technology, in that order, made the biggest contribution to economic growth in developed and developing economies; education and health made a bigger contribution to growth in developing economies; and innovation/technology made a bigger contribution in developed economies.

Implications for Research and Practice: These findings have implications for countries trying to achieve stable economic growth, their efforts should be directed to improve the quality of education, and to implement projects with high short-term returns.

Keywords: Human capital, economic growth, social welfare, panel VAR analysis.