Chapter an active factor of production while the natural

Chapter 1                          


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discussion on development, one should know its component; called economic
growth. Economic growth is a key variable that assess all economic activities
in an economy. It can be defined as “increase in the value of goods and
services by an economy at market value over time”. It is also defined as
increase in the productivity capacity over time in a peculiar country. For
developing countries striking decrease in the level of economic growth is a problem.
As many social evils are linkage with low level of economic growth for example
unemployment, suicides, crimes, and poverty rates.

Human capital
is the most important determinant of economic structure. It determines the
productivity of the economic growth and development at different sectors. It
also exposes the development of social norms as the defining projection of the
human capital can portrays in different scenario, but the most projected state
of the human can be said that the capability and skill of the masses are called
human capital. It has very positive effects on economic growth and economic
development, increase in the human capital will leads to reduce in the mistakes
and to improve plans and modalities of the people. It also situate effects on
the unemployment. Human capital is a best instrument to increase economic
growth at country level.

 Human capital is considered to be an active
factor of production while the natural resources and capital are the slow
factors. Anything for economic growth can never being done until we increase
the skills of human beings so in order to employ the other resources
efficiently we have to increase the mental and physical capacity of people through
literacy and by increasing their skills abilities in this way we can decreases
the unemployment and moves the economy towards economic growth.

There are two
major determinants of human capital such as education and health. Education is
a key factor to promote the efficiency and capabilities of the person. It is
that component which influence the whole sector of the economy. Human capital
can also be defines as “capabilities and skills of person.” It is observed from
different researches of economist that higher education plays a notable role towards economic growth. The education
increases the skills of the people and provides more chances for job.

 There is strong link between the education
level and economic growth level in a country. When people invest in their
educations as a result they increase their employment opportunity and then by
increasing employment opportunities they are able to earn more, reduce the
poverty rate of a country, increases their living standard and at the end all
these factors leads to enhance the economic growth level. The rate of return
towards education and economic growth is likely to have positive relation with
each other.

In Pakistan it
is regretting to say that just 1.56 percent budget spends on education sector
in 2010.Similarly health also contributes towards economic growth

Health has also
significant impact on economic growth of a country. Healthy workers are more
efficient and more productive. Healthy and physically fit workers increase the
aggregate supply of the country that increases exports in the long run,
increase income per capita, improve living standard of people and reduce
un-employment and all these factors promote economic growth of the country.
Additional amount on health should be spent by the Government to increase the
productivity of the workers so that they are able to work more efficiently.

Expected life
of the people is also the important factor of human capital. Health, physical
fitness and maximum experience of the peoples are indicating by the high life
expectancy. The expected life of the people plays a significant role in reducing
unemployment. The current expected life in Pakistan is 66 years (World Bank
report). The experienced persons do their work more efficiently and there is
chance of doing less mistakes or no mistakes. So as the experience of the
people increases the rate of unemployment tend to decrease. So there is
negative relationship between experience and rate of unemployment. As the life
expectance of the people’s increases by providing them good health facilities
the experience of the people also increases and they will be work more


of the Study

The basic
purpose of study is to find out the association among economic growth and
factors of human capital in Pakistan. And also compare the gender wise
education level and also role government in determining it.





CHAPTER 2                     

                                      Literature Review

As this
research is basically conducted to see the impact of human capital and its factors
on economic growth, either human capital is affecting positively or negatively
and the role of public investment. To see the relationship between human
capital and economic growth many economists do researches in order to find the
impact of human capital on economic growth in different countries. So the human
capital includes literacy rate, enrollment rate, health facilities &
skills. Following are some researches which are discussed below,

Sarwar (2013)
investigated the role of human capital formation on economic growth level of
Pakistan for the time period 1973 to 2012 by using secondary data source.
Johansen co integration approach is applied to investigate the long run
relationship between dependent and independent variables. Result of study confirms
that capital formation have highly positive and significant impact over
economic growth of Pakistan.

Qadri and
Waheed (2011) applied Cobb Douglas production function to examine the
relationship between human capital and economic growth using time series data
from period of (1978 to 2008).  Finally
result shows that human capital and economic growth are positively correlated
with each other. Other economists Asghar and Asma (2011) determine the
relationship between human capital and economic growth of Pakistan. They used
“Johnsenco integration test” in order to check the short run and long
run relationship among the variables. According to them human Capital and
economic growth are strongly linked with each other, so to ensure economic
growth in the country, Pakistan has to invest more in health and education

Akram (2008)
estimates the long run relation between health status and economic growth.
Study concludes that health status is helpful to increase the economic growth
by increasing the productivity and efficiency level of humans that will not
only increase their per capita income but also increase the aggregate growth
level of the country. Abbas (2008) explains the relationship between human
capital and economic growth in Pakistan with aggregate time series data.
Approximated Johansen approach and the study tell that human capital plays an
important role in economic growth. High expenditure on health and education are
very favorable to industrial as the marginal productivity of worker increased.
Since in 1990s in Pakistan the effect of human capital represents a negative
impact on economic growth because human capital policies are underprovided.

Abbas (2001)
examined the long run relationship between human capital and economic growth of
two developing countries Srilanka and Pakistan. Education and health are used
as factors of human capital and gross domestic product (GDP) used as a
dependent variable to investigate the effect of human capital on economic
growth. Result of the study indicates that human capital factors are
significantly contributed to economic growth of developing countries.

The impact of
human 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 OLS
method is applied. Different proxies such as primary education, secondary
education and higher education were used for this purpose. Different results
obtained by using different proxies. Result shows that primary education is
positive correlated in case of India while in case of Pakistan higher education
is positively correlated whereas Secondary education is positively related in
case of both countries India as well as Pakistan.

0ver the last
decades fiscal policy have an important role in economic growth. Public
investment polices related to privet sector have keen impact over the
countries. Government should adopt such policies which helps the human capital
to grow.

on recent literature, human capital also plays an emphasized role in economic
development. More specifically, either educational quality or quantity seems to
be major determinants of economic growth, whereas in the existing economic
growth models, human and physical capital conduct a major role. Surveys
identified the productive contribution of infrastructure components and human
capital of public capital on per capita income growth. There are two different
channels through which a higher human capital generates higher economic growth:
firstly, through facilitating the absorption of advanced technologies from
advanced economies. Additionally, human capital  incline
to be less easily accommodating than physical capital within the countries.
Nonetheless, the procuracy variables of enrolment-ratios and average years of
schooling measure only the quantity of human capital. Thereafter, they are not
completely perfect measures of the educational component of human capital. That
is the reason why many recent studies 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 on economic growth are being investigated. Whereas these
measures may not be perfect for productive expenditures (there is a different
impact on economic growth when governments invest on building school-houses or
hospitals and when they pay wages on public employees), it has been noted that
public health expenditures improve citizens’ health, while education
expenditures promote cost efficiency and meliorate skilful personnel.

the same category of productive government expenditures with a direct effect on
growth rate is public capital. Public capital has a direct effect on subsequent
growth through the enhancement of private capital accumulation. For the
improvement of the standards of living as well as long lasting growth, both
public and private capital accumulation are a necessary condition.
Particularly, long-run growth is pretentious positively by infrastructure
components of public capital, the quality of public capital (paved roads,
telecommunication services, and ports), and the relationship between private
and public capital matters for the economic growth. For instance, good marginal
productivity is increased by institutions and access to international credit
markets, leading to an increase in economic growth which is also achieved by
technology spill overs and learning-by-doing factors.











CHAPTER 3                 

                         DATA VARIALES AND METHODOLOGY

In this chapter
the different variables are analyzed under the descriptive purposes, and source
of data will be discussed. For examining the role of education and gender on
the economic development we will analyzed the following variables for
descriptive purposes.  

                GDP growth Rate

                 Literacy Rate

                Life Expectancy

                                                                                                       Expenditure on the Literacy

                  Expenditure on the Health


Primary School

Education Gender Wise                                                    
Middle School

                                 High School

Higher Secondary


Sources of Data

To analyzing
the impact of human capital on Economic growth of Pakistan we using the
secondary data of twenty-four years which is taken from Economic Survey of
Pakistan, and the World data Bank.






GDP growth:

 Figure 01: GDP growth rate (%)

*Source: World Development Indicator

This graph shows
the fluctuation in GDP growth rate. It shows the increasing trend but also
decrease at 1991, 1997, 2001, 2007 But now a days it start increasing the
decreasing trend in GDP growth is due to terrorism, instability in government
and unfavorable government policies, which result unfavorable environment for
economic activities.

Literacy rate:

Figure 02:

*Source: World Development Indicator


Literacy rate are
showing constant trend in the starting years but after 1987 it is showing
increasing trend and in year 2007 there is a great increase in the literacy
rate, showings that the people are moving towards education.






Life Expectancy:

Figure 03:

*Source: World
Development Indicator

This graph also
shows the increasing trend it means that the facilities given to the people are
good quality in the health sector that’s why life expectancy of the people is

Expenditure on Education:

Figure 04:

*Source: World Development Indicator


This graph
explains the tendency of government expenditure on education. This graph shows
the constant between 2 to 3. From the graph we can conclude that the government
does not put its importance toward the education.

Expenditure on

Figure 05

*Source: World Development Indicator

This graph shows
the trend of health expenditure remains constant. And it can be observed that
Government increases the expenditure on health sector during Musharraf’s
regime. But it shows the decline in the graph due to the political instability
in the country and also due to less management in the government sector and
also due to the trend of corruption in the whole country.






The table which
is shown below explains the descriptive statistics of variables belong to
development side.

Table 01 Descriptive Statistics































Std. Dev.
















































Sum Sq. Dev.












*Source: World Development Indicator

Whereas, EE=
Expenditure on education,   GR=GDP growth rate, HE=Expenditure on the
health, LE=Life expectancy and LR=Literacy rate.



The data contains
twenty five of annual observations from period of 1991 to 2015. The descriptive
statistics tells that the average of growth of gross domestic product is 4.073398with standard deviation of 1.866263. Whereas
the average of education expenditure is with standard deviation of and the
minimum expenditure on education is 1.837820 and the maximum expenditure on
education is 3.022%.

The maximum
expenditure on heath by Government is 3.401686 % while the minimum expenditure
on health is 2.503630 % and the average of health expenditure is 2.785229 with
standard deviation of 0.253046. The maximum life expectancy in Pakistan is
66.37698 while the minimum life expectancy is 60.39622 and the average is 63.44274with
standard deviation is 1.817012. 

The minimum
literacy 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.

statistics of variables shows that the life expectancy and literature rate are
platykurtic (flat and short tail) and the other variables are leptokurtic (long
tail and higher peak).

Education Gender Wise

We cannot
ignore the role of women in the field of social development, and we can’t
ignore her contributions. These contributions will be fruitful if we educate
them. In this context we will analyzes the difference in education of both
genders. For our simple analysis we will analyze the primary, middle, high and
higher secondary of both genders.


Primary Schooling:

Figure 06 Primary School: Numbers of students in “000”

*Source: State Bank of Pakistan:
Annual publications


In the above
figure in the initial periods the difference of education in both gender is
high, but as time passes the difference reduced better one in 2015. From the
above scenario we can concluded that neither parents nor government interested
to emphasized for educating women at primary level within the one and half






Middle Schooling:

Figure 07 Middle Schools: Numbers of
students “000”

*Source: State
Bank of Pakistan: Annual publications

In the middle
school the scenario is totally different from primary level. Still the male has
dominated numbers than female, but their difference is negligible. If we
analyze the trend over the time we can estimate that in coming five to ten
years the female will be more than male at the middle school level.







Figure 08 High School: Numbers of
student in “000”

*Source: State Bank of Pakistan: Annual

In the context of
high school, the trend of both genders increases over the time. The difference
in the gender level remains stable through one and half decade. Over all their
attainment at high school remains  






Higher secondary colleges:

Figure 09:
Higher secondary Colleges: No of students

*Source: State Bank
of Pakistan: Annual publications

In the above
figure same scenario can be observed as observed in the middle schooling. Trend
of both genders increasing over the time. And the difference in their education
attainment level observes smaller over the time.


Lower gender
inequality in education channel higher female education at each level of male
education. Because female education is believed to have positive external
effects on the quantity and quality of education for educated women’s children
(through the support and general environment that educated mothers can
provide), lower gender inequality would therefore enhance the human capital of
the next generation, which should also foster economic growth (World Bank


There is an overwhelming
evidence that higher female education, which would get as a result of lower
gender inequality in education, reduces fertility rates. Lower fertility could
affect economic growth in four different ways. First, lower fertility reduces
population growth and thus facilitates investment’s being used for capital
deepening (more capital per worker) rather than capital widening (equipping new
workers with capital), which would promote economic growth. Second, reduced
fertility lowers the dependency burden, increasing savings rates in an economy,
which would increase growth. Third, lower fertility will, for a limited period
of time, increase the share of workers in the population. When a large number
of workers enter the labor force as a result of previously high population
growth, it increases the demand for investment in capital equipment and social
overhead (such as housing). If this higher demand is met by increased domestic
savings (as a result of the reduced dependency burden), increased capital
inflows, or both, investment will expand— which should boost growth. Fourth, if
growth in the labor force is absorbed through increased employment, per capita
economic growth will rise even if wages and productivity remain the same. This
is because more workers will be sharing their wages with fewer dependents,
boosting average per capita income.




The research dispense
discernment upon the factors which effect the economic growth of a country.
This review shows that government policy effect the performance of economic
growth. The above research shows that over the time GDP, literacy rate and
expenditure on health and education shows business cycle swing either crust or
turf. In the origination we see an increasing trend than decreasing trend
showing us that there political instability and terrorism in country upshot the
economic environment. The above result shows that government is non-serious
towards the health and education expenditure over the time.

Government in
future should invest in education and health to boost further should
invest in female’s education and in new technologies which will generate new
ideas. Generally, public
polices seem to be a tangled issue; therefore, future research must focus on
regimes in the policy sector and also on the interactions between policies as
opposed to the independent effect of any particular policy.