Connection and Interaction Between Education and Economy: An Empirical Study From Pakistan by Using the ARDL Technique

Abstract

Education is considered a key element in the formation of human capital, associated with the sustainable development of a country’s economic growth. The study has investigated the relationship between education and Pakistan’s economic growth in the short as well as long run. For measurement, thirty years of data spanning from 1987 to 2016 was used in the study. The data was retrieved from World Development Indicators (WDI) and the Pakistan Bureau of Statistics (PBS). Economic growth was measured from real GDP while education was measured by total years of formal education and government expenditures for education. Pesaran bounds test approach and ARDL model for long and short-run co-integration were applied. The results deduced from the study described that by increasing the labor force education, the real GDP increases with the existence of significant and positive co-integration and confirmed the long-term relationship. It is observed that by increasing the 1% of labor force education, there is a 0.62% increase in real GDP (economic growth) in long run. On the other hand, the results also described the significant and negative co-integration relation between government education expenditures and economic growth (real GDP) in long run. The appearance of this negative relation in results is probably due to the unavailability of total educational expenditures as in this study the education of the labor force increases with decreasing trends in government educational expenditures. This study may be helpful for policymakers in educational policy formulation to enhance the government educational expenditure for improving the education standard of the labor force to boost Pakistan’s economic growth.