An analysis of the contribution of human capital to economic growth in South Africa
Ntuli, Lerato Christine
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The importance of human capital, as a key economic variable that promotes growth, has long been a controversial topic, hampered in part by the lack of its empirical evidence in developing countries such as South Africa. Although single country studies have been conducted on human capital and economic growth, there are a variety of proxies employed and a significant correlation is yet to be established. There is also uncertainty in the spheres of human capital and its impact on economic growth, and consequently most analysis and policy conclusions have been based on models and studies carried out in developed countries. Whereas the adoption of ineffective policies towards investing and developing the human capital of any country could have adverse effects on their economic growth and development. This should be all the more true for an emerging country like South Africa. This study contributes to this debate by conducting an analysis of the contribution of Human Capital to Economic Growth in South Africa. Human capital refers to the abilities gained by individuals through formal and informal education, employment, work experience, as well as other types of knowledge and attained qualifications. Human capital relates to the correlation between the level of education, training and productivity. Human capital theory argues that education can contribute to the improvement of productivity and employee efficiency through the development of cognitive skills. Proponents of the human capital theory have found that basic literacy improves the productivity of low skilled workers while technical and specialised knowledge improves the productivity of highly skilled employees. This suggests that access to knowledge and skills through education in an economy can lead to an increase in the productivity of labour and therefore to economic growth in the economy. It is for this reason that the South African government devotes substantial amounts of money towards human capital development, particularly through expenditure in the education sector. This is done out of the belief that human capital is a key tool in accelerating the iv economic growth of the country. This study therefore sets out to establish whether there is a long run relationship between human capital proxied by expenditure in education and economic growth in South Africa. It uses the autoregressive distributed lag (ADRL) model and the error correction model (ECM) model to examine the long-run and short-run relationships between education expenditure and economic growth alongside other explanatory variables. It uses secondary time series data, over the period 1980 to 2019. The results of the study revealed that there is a positive long-run relationship between education expenditure and GDP per capita in South Africa. However, there is no short-run relationship between education expenditure and growth in GDP per capita in South Africa, suggesting that there is a lag period before any expenditures in education can translate to meaningful economic growth as can be expected. The findings of this study reveal that a deliberate investment in education would have long term benefits for the South African economy and should consequently be considered a policy priority for the South African government. The study therefore recommends that the South African government should continue to invest in human capital development through expenditures on the educational sector but should also implement policies that are geared towards improving the quality of the education and resolving the other challenges of the educational sector, particularly improving the through put rates and improving upon the quality of education in the township and rural areas. Such a focus on improvements in the educational sector should improve the quality of human capital, and accelerate the level of economic growth in the country.