Human Capital and Physical Capital Nexus with Economic Growth: An Analysis of Bangladesh

Abstract

The main purpose of this study is to analyze the relationship between human capital, physical capital to the economic growth of Bangladesh. As developing countries like Bangladesh, require physical capital as well as human capital for the economic growth of the country. To fulfill this objective this study used the most renowned Cobb-Doughlas production function. Using the data from 1990 to 2021 the long-run relationship among the variables is tested through ARDL bound testing approach. GDP growth is used as a proxy for economic growth; Gross fixed capital formation as a proxy of physical capital; labor force participation and secondary school enrolment are used as a proxy of human capital in this study. In both the long run and short run, this study has shown a significant positive impact of gross fixed capital formation and secondary school enrollment on the economic growth of Bangladesh. On the contrary, in case of long run labor force participation has shown a significant but negative impact on the economic growth of Bangladesh. Furthermore, the estimated error correction term suggests that the economy will correct the disequilibrium at a 78% rate in a year. Therefore, the government and policymakers should take necessary actions to strengthen and expedite the human capacity and rapid industrialization along with the technological advancement of the country.