Revised Macro-Mincer Model for Human Capital Investment in Economic Growth

Theoretical verdict of the economic growth evolved extensively over last decades in the growth literature. Despite the numerous explanations of growth empiric, macro economic perspectives to understand the role of human capital in economic growth needs to be thoroughly understood to make prudent economic policies for investment. The paper intends to identify the empirical specification and estimation for effect of human capital on economic growth. The rationale for the research is to provide pragmatic evidences that lead economic growth under the human capital investment policies. Empirical approach is applied to (i) construct revised-Macro-Mincer model (ii) estimate revised Macro-Mincer model with instrumental variable 2SLS approach to reveal the effect of human capital growth on economic growth using macroeconomic data from ASEAN and South Asian region from 1960 to 2014. The revised Macro-Mincer model provides theoretical specification and empirical validation of the human capital in economic growth derived from Solow growth model. Then, it is used for finding the signaling effect of the Investment, dependency, industry-services and rural-urban population changes of the Macro-Mincer model. Further, the revised version is applied for the Lucasian growth model to confirm the effects of human capital in economic growth progress. The revised Macro-Mincer model, across estimation methods and specifications, predicts a strong relationship between human capital and economic growth, and estimates the coefficients robustly than recent models in the literature. The results of the model exposes that, in addition to the growth of the previous year and its difference, human capital also paly a significant role on the growth rate of the economy. Further, life expectancy and trade openness included in new version of the model are significant predictors of growth rate of GDP per capita. Insignificance of the binary for regional variation implies that spatial disparities are not a driver of economic growth. The implications of the study are to deliberate on the investment in human capital to promote economic growth in the economies. Finally, the paper guides policymakers to reform human capital, in terms of educational reforms in human development policies to achieve advancement in economic growth