Does human capital matter for economic growth in Sri Lanka? An analysis using employment-based human capital indicators

Abstract

Introduction

‘Human Capital’is considered a factor of production (e.g. Becker, 1964; Shultz, 1961; Romer, 1986; Lucas, 1988), with education, health, training and experience as key components (Becker, 1992). Its empirical contribution to economic growth, however, shows a large variation across the range of human capital indicators in use (Flabbi and Gatti, 2018). At the macro level, physical indicators of human capital in terms of education and health tend to be based on the entire population. Examples are: literacy, numeracy and educational attainment (World Economic Forum, 2017), and in Sri Lanka, (indices for) adult literacy and gross enrollment in constructing a proxy for education and (an index of) life expectancy for health (Vijesandiran and Vinayagathasan, 2015), and primary school enrollment (adjusted for health).

A recent approach targets the education and health status of the employed population in Sri Lanka (Sumaiya and Abayasekara, 2016) on the grounds that this group is directly involved with domestic production. All these models, however, yield ambiguous results for the relationship between human capital and economic growth for Sri Lanka. For instance, the education-economic growth nexus is negative (Vijesandiran and Vinayagathasan, 2015) or positive (Sumaiya and Abayasekara, 2016, Godagampala, 2018). Also, real capital and recurrent expenditure on human capital shows no significance for growth in one case (Vijesandiran and Vinayagathasan, 2015), but positive (for capital expenditure) and negative (for recurrent expenditure) relationships in another (Godagampala, 2018). The research gap is the lack of consistent empirical confirmation of the expected positive relationship between, on the one hand the education and health components of human capital, and on the other hand, economic growth for Sri Lanka. The research problem is therefore whether such positive relationships exist for Sri Lanka.