Investigating the Effect of Human Capital on Economic Value Added in Iran and Providing Appropriate Solutions to Promote It

Abstract

Human capital causes increase in the production factors productivity and in turn affects economic growth positively. In this study, we intend to study the effect of human capital on economic value added in Iran by extracting the type and manner of the influencing of education costs on economic growth and to provide appropriate solutions to promote this role in the economy. The method of this research is descriptive-analytical. To evaluate the short-term equilibrium relationship between the variables, we use the Auto Regressive Distributed Lags (ARDL) method. Based on the results, in the short-term, human capital indicators have positive impacts on growth of economic value added. The long-term results indicate that the gross secondary and university enrollment ratio, the import‎ of goods, services and income growth, the percentage of public education costs to GDP, the percentage of private health spending to GDP, the labor force participation (aged 15 and more), the foreign direct investment growth, government efficiency, quality of rules and annual growth of gross capital formation have positive and significant effects on economic value added growth. Error correction term of ARDL model is ‎- 0.78.‎ that shows in each period 78% of short term shocks will be adjusted to the long-term value. The results of this study can be used by policymakers because identifying the factors affecting economic growth, can make economic planners inform in two important aspects, firstly, by considering new variables in planning and thus the optimal allocation of resources, and secondly, by reducing errors due to misanalysis of the factors affecting economic growth.

Keywords

• economic value
• human capital
• labor
• education costs
• autoregressive distributed lag method