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

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 Pakistan. Human capital is measured by educational attainment (primary, secondary, tertiary), life expectancy at birth, and child mortality. Using annual data for 1990–2020 (from World Development Indicators and the World Bank) and applying an autoregressive distributed lag (ARDL) bounds-testing approach, the results show that current health expenditure (CHE), domestic government health expenditure (DGHE), government education expenditures (GEE), FDI, and social protection (SP) have positive and significant associations with human capital (education attainment and life expectancy). Government spending on health and education and SP significantly reduce child mortality. Population growth negatively affects primary attainment. The study recommends increasing allocations to health, education, and social protection to enhance human capital in Pakistan.

Shazia Kousar, Farhan Ahmed, Muhammad Afzal, Juan E. Trinidad Segovia