Before the 18th century, investment in human capital was minimal. However, advancements in science and technology shifted this, leading to a greater understanding of human capital's role in economic growth. A nation's human capital is determined by the education, health, and skills of its population. A skilled, innovative workforce is vital for high productivity and sustainable economic growth, transforming economies from resource-based to knowledge-based systems. Developing nations, particularly, depend heavily on human capital investment for prosperity. This research aims to determine the significance of key factors in human capital development in Pakistan, specifically focusing on the role of government spending in education and health sectors.

Existing literature extensively examines the relationship between government expenditure on education and economic growth, but research on its impact on human capital formation is limited. Studies on Nigeria show mixed results, with some finding no significant impact of government spending on the Human Development Index (HDI), while others in India and Indonesia report a positive association. Research on social protection policies primarily focuses on financial crises and resilience to shocks. However, emerging literature highlights social protection's role in building, protecting, and deploying human capital. Studies show that social protection policies can improve food security, asset formation, and spending on children's education and healthcare, thus contributing positively to human capital development. This study addresses this gap by investigating the impact of government spending on education, health, and social protection on human capital in Pakistan.

This study employs time-series annual data from 1971 to 2020, sourced from the World Development Indicators (WDI). The dependent variables are various measures of human capital: primary education attainment, secondary education attainment, tertiary education attainment, life expectancy at birth, and child mortality rate. The independent variables include current health expenditure, domestic government health expenditure, government education expenditure, social protection spending, population growth, and foreign direct investment. Before analysis, the stationarity of the time series data was confirmed using the Augmented Dickey-Fuller (ADF) test. An ARDL bound test was used to determine the existence of long-run co-integration among the variables. Given the mixed order of stationarity for the variables, this method avoids biased results. Following the confirmation of co-integration, ARDL co-integration was applied to estimate short-run and long-run effects. Diagnostic tests such as the Breusch-Godfrey Serial Correlation LM Test, Breusch-Pagan-Godfrey LM Test for heteroscedasticity, and the Ramsey RESET test were performed to assess the reliability of the models. Five separate models were estimated, each using one of the five different human capital indicators as the dependent variable. The study utilized automatic lag selection criteria in the ARDL model.

The ARDL bound test confirmed the existence of long-run co-integration between human capital indicators and the independent variables across all five models. Analysis of the ARDL models revealed the following key findings: **Model 1 (Primary Education Attainment):** Current health expenditure (CHE), domestic government health expenditure (DGHE), and social protection (SP) showed positive and significant short-run and long-run relationships with primary education attainment. Population growth exhibited a negative and significant relationship. FDI had a significant positive short-run effect, but the long-run effect was insignificant. **Model 2 (Secondary Education Attainment):** CHE and DGHE had positive and significant short-run and long-run effects on secondary education attainment. FDI showed a significant positive short-run effect but was insignificant in the long run. **Model 3 (Tertiary Education Attainment):** CHE, DGHE, SP, and FDI showed positive and significant short-run effects. In the long run, DGHE, government education expenditure (GEE), and SP had positive and significant relationships. **Model 4 (Life Expectancy at Birth):** CHE, GEE, and SP had positive and significant short-run relationships. In the long run, CHE, DGHE, GEE, and SP all demonstrated positive and significant relationships. **Model 5 (Child Mortality Rate):** DGHE, GEE, and SP had negative and significant short-run and long-run relationships with child mortality. CHE had a negative and significant long-run relationship but was insignificant in the short run. Population growth showed a positive and significant relationship. The Error Correction Model (ECM) term in all five models indicated model stability. The results suggest that government spending on health and education, along with social protection programs, plays a significant role in improving human capital in Pakistan, while population growth has a negative impact on primary education attainment. FDI showed a mixed impact across the models.

The study's findings directly address the research question by demonstrating the importance of government spending on health, education, and social protection in human capital development in Pakistan. The positive and significant relationships between these variables and improved human capital indicators (education attainment, life expectancy, and reduced child mortality) highlight the crucial role of government intervention. The negative impact of population growth on primary education attainment underscores the need for population control policies. The mixed impact of FDI suggests that further research is needed to understand the specific mechanisms through which FDI influences human capital. These findings are consistent with existing literature that highlights the importance of education and healthcare in economic development, and the contribution of social protection to human capital development in low-income settings. The results provide strong empirical support for policies aimed at increasing public investment in these sectors.

This study provides strong evidence supporting the necessity of government spending in the health and education sectors for human capital development in Pakistan. The positive impact of government expenditure on education and health outcomes, along with social protection programs, is significant. Further research could investigate the optimal allocation of resources across these sectors, the role of specific social protection programs, and the interaction between FDI and human capital development, considering regional variations within Pakistan.

The study utilizes aggregate data, which may mask variations at the individual or regional levels. The analysis relies on correlations, and causation cannot be definitively established. Future research should consider using disaggregated data and employing more sophisticated econometric techniques to explore causal relationships more thoroughly. The time period covered may not fully capture the long-term impacts of government policies and there may be other unmeasured confounding factors.