Effects of Human Capital Development on Economic Growth in Sub-Saharan Africa

Abstract

This study examines the effect of human capital development on economic growth in Sub-Saharan Africa using annual panel data for the period 1990–2021. Human capital development is represented primarily by the Human Development Index, while real gross domestic product is used as the measure of economic growth. Exchange rate, inflation rate and interest rate are included as control variables. To provide a broader assessment of human capital, the study also considers life expectancy, literacy rate and labour force participation rate as alternative indicators. The analysis applies panel autoregressive distributed lag estimation to examine long-run and short-run relationships, while difference and system generalised method of moments estimators are used as robustness checks. Preliminary tests indicate mixed orders of integration among the variables and support the use of panel ARDL estimation. The Pedroni and Kao cointegration tests suggest the presence of a long-run association between human capital development and economic growth. The long-run ARDL results indicate that human capital development has a positive and statistically significant relationship with economic growth. Life expectancy and labour force participation also show positive long-run associations, while literacy rate records a negative and statistically significant relationship in the estimated model. The short-run error correction terms are negative and statistically significant, indicating adjustment toward the long-run equilibrium after short-run deviations. The GMM estimates broadly support the relevance of human capital development in explaining economic growth, although some indicator-specific results vary across model specifications. The findings suggest that sustained improvement in human capital remains important for growth in Sub-Saharan Africa, particularly through education quality, health outcomes, labour participation, and skills development.