Impact of Financial Globalization on Human Capital: Evidence from Pakistan

Abstract

Human capital (HC) leads to economic development of a country, higher the investment in human capital (HC) higher the economic development. Education skill enhancement and health are two leading ways to check the progress of human capital. According to Economic Survey 2014-2015 in Pakistan only 2.2% of GDP use for education purposes and only 0.9% of GDP spends on health purpose of people of Pakistan. This study tries to focus on the importance of human capital (HC) investment by checking the impact of financial globalization on human capital (HC). The variables used in the study are FDI inflows, GDP, ICT and Economic globalization as independent variables and mean years of schooling taken for human capital (HC) as dependent variable for the year of 1980-2014. After checking the unit root of variables through augmented dickey fuller test (ADF) it was confirmed that all variables were stationary at I(1). Thus, for I (1) variables the Johansen and Juselius (1990) cointegration approach and vector error correction method is used to estimate the impact of variables on human capital in long-run. The result of this study shows that there exists long run and statistical significant relationship among variables and found that FDI, EG, ICT and GDP positively contributing in human capital. Hence, for positive improvements in human capital the Share of GDP for education sector should increases for that purpose tax net system needed to revise by the government. Government should also provide benign and more cost-effective environment for FDI investors in Pakistan for the promotion of human capital. Use of ICT by youth should urge to be positive for contribution in human capital. Economic globalization should be deliberately improve for it positive contribution in human capital.