Human Capital, Private Physical Capital, Public Infrastructure and Economic Growth in Ghana: an ARDL Bound Testing Approach

Abstract

Ghana’s achievements in advancing education and health have been remarkable. Conversely, World Bank Human Capital Report has ranked Ghana as the last but one country on harmonized test scores of children from basic to secondary school in the World. Premature births, infections and complications during and after pregnancy and maternal deaths also remain high and infrastructure challenges persist in the power sector as well as the quality of services received by Ghanaians. The study examines the effect of human capital, private physical capital and public infrastructure on economic growth and the causality between the variables in Ghana considering two alternative measures of human capital (health and education) and public infrastructure (electricity and telephone subscription). Autoregressive Distributive Lag (ARDL) and pairwise granger causality test was used on annual data for Ghana from 1975 to 2017. The empirical results show that, in the short run, the individual measures of human capital (education and health) and public infrastructure (electricity) have positive and significant effects on economic growth, although the contribution of health is relatively larger than that of education. In the long run, the variables of the study do not have significant effect on economic growth. When composite human capital, physical capital and composite public infrastructure were examined, composite human capital has positive and significant effects on economic growth in the short run. However, in the long run, composite human capital, composite public infrastructure and physical capital do not have significant effect on economic growth. Unidirectional causality was found between human capital (education and health) and economic growth, bidirectional causality between private physical capital and economic growth and unidirectional causality between public infrastructure (electricity) and economic growth. No causality was found between public infrastructure (telephone subscription) and economic growth in Ghana.

This finding emphasizes the importance of both alternative measures of human capital and aligns with the argument in the literature that neither education nor health is a perfect substitute for the other as a measure of human capital. It is recommended government improves human capital development and find lasting solution to Ghana’s infrastructure challenges.