Is government spending in the education and health sector necessary for human capital development?

Abstract

Abstract This study intends to examine the impact of current health expenditure, domestic government health expenditure, government education expenditure, social protection, population growth, and foreign direct investment (FDI) on human capital formation in the context of Pakistan. This study utilized skill and health to measure human capital. The study utilized annual data for the period of 1990–2020 and data has been extracted from World Development Indicators (WDI) and World Bank. The study utilized auto-regressive distributed lag (ARDL) bound test to examine long-run co-integration among defined variables. Furthermore, the study employed ARDL Model to obtain long-run and short-run empirical estimates for modeled variables. The results of this study indicated that current health expenditure (CHE), domestic government health expenditure (DGHE), government education expenditures (GEE), foreign direct expenditure (FDI), and social protection program (SP) have a positive and significant association with human capital in term of primary, secondary, and tertiary education attainment and life expectancy at birth. Moreover, domestic government spending on health and education, and social protection program significantly decreases child mortality in Pakistan. Furthermore, this study found that population growth has a negative and significant association with primary attainment. The findings of this study suggest that the Government of Pakistan should allocate more of its budget for health, education, and social protection programs to uplift its human capital.