HUMAN CAPITAL DEVELOPMENT AND ECONOMIC GROWTH IN RWANDA. A TIME SERIES ANALYSIS

Abstract

ABSTRACT There’s a general consensus that human capital development contributes to economic growth and development. This study, estimate this relationship using time series data on Rwanda for the last three decades (1988-2017). Cobb-Douglass production function and econometrics techniques of Johansen Cointegration test and the Vector Error Correction model confirms the presence of a long-run relationship between economic growth proxied by GDP per capita and explanatory variables i.e. gross fixed capital formation, labor force participation rate. Total government expenditure on education as percentage of GDP, life expectancy at birth and primary school enrolment rates as proxies for human capital development. Long-run model estimates show that fixed capital and life expectancy at birth are significant and with a positive trend. In the short-run, the role of human capital development in economic growth is estimated through the Vector Correction Mechanism. Its coefficient term which indicates the adjustment speed towards longrun equilibrium showed that previous deviation or shock in the human capital from the long-run equilibrium is to be corrected in the current period at an adjustment speed of 9 percent annually which may indicate that return on human capital is a time-consuming process. Overall, results are consistent with other studies which argues that human capital development leads to economic growth in the long-run.