Testing The Effect of Human Capital Investment on Economic Growth

This paper conducts a study on effect that education and health has on economic growth, a case study of Cabo Verde. A considerable number of studies have been carried out in attempt to prove the existing relationship between human capital with economic growth. We used secondary times series data of the following variables, public expenditure on education, public expenditure on health and gross domestic product for the period of 1990 - 2012. We attempt to find the short run and log run relationship associated with the variables in this study. For this purpose unit root tests such as: ADF, PP tests are utilized to check the stochastic properties of the variables, Johansen co integration tests and vector error correction model are applied to find relationship among variables. The results show that there is a long run relationship between economic growth with education and heath and there is a short run relationship between economic growth and heath, which runs from heath to economic growth. This study brings new insights of gross domestic product long and short run relationship with human capital and provides empirical evidence of exceptional case of Cabo Verd