Dynamic Relationship between Human Capital and Economic Growth in Sri Lanka: A Co-Integration Analysis
S. Vijesandiran
Department of Economics and Statistics, Faculty of Arts, University of Peradeniya, Sri Lanka
T. Vinayagathasan
Department of Economics and Statistics, Faculty of Arts, University of Peradeniya, Sri Lanka
Keywords: Human capital, Economic growth, Cob-douglas model, Endogenous growth theory, Co-integration, Error correction model.
Abstract
Annual data from Sri Lanka was used to analyze dynamic linkage between human capital and economic growth rate. ADF, PP, and Ng-Perron unit root tests confirmed that all the series that has been included in the model are stationary at first difference. Co-integration test identified one co-integrating vector, suggesting long-run relationship between the variables. Both co-integration and VECM test revealed a positive long-run relationship between health index and per capita GDP. We also found the long-run equilibrium of the model for the real per capita GDP, real capital expenditure on human capital and real labor expenditure on human capital. The results of VECM suggested a short-term relationship between per capita GDP and health care, education level and per capita income and health care and education.