Human Capital and Economic Growth in Albania - Economicus

by, Tatjana Mocka

Abstract

Human resource development is one of the necessary conditions for all kinds of growth: social, political, cultural, or economic. The concept that investment in human capital promotes economic growth actually dates back to the time of Adam Smith (1776) and the early classical economists who emphasized the importance of investing in human capital. Sustained economic growth accompanied with social development is one of the notable macroeconomic objectives of every country and in this regard human capital is deemed as an essential ingredient. In this study, the relationship between education and health that are accepted as a proxy for human capital and economic growth is tested empirically. The study aimed at decomposing the relationship between human capital (using expenditure on education and life expectancy as a proxy) and economic growth in Albania over the period 1990-2014 using modern econometrics technique. In this model, gross domestic product (GDP real) is based on the Cobb Douglas form, which is the function on three variables: Real Gross Domestic Product (GDP), Expenditure on Education (EDU) and Life Expectancy (LE). The study uses Ordinary Least Squares (OLS). Long-run relationship among variables is confirmed through Johnson co-integration analysis. The finding indicates that in the long run investment on education and health would affect further economic growth. The empirical results support the main hypothesis of this study that human capital affects positively economic growth in Albania.