RELATIONSHIP BETWEEN HUMAN CAPITAL AND ECONOMIC GROWTH IN MALAYSIA

Abstract

This paper will focus on the long-run relationship and causality between human capital development and economic growth in the Malaysian economy for the last three decades. In order to achieve the objective, an estimation of Vector Auto Regression (VAR) method would be applied on the created research model. The findings from the research showed that economic growth (GDP) positively cointegrated with selected variables namely fixed capital formation (CAP), labor force participation (LAB), government expenditure on education (EDU) and health (HEA). From the aspect of Granger causality relationship, it is found that the economic growth is a short run Granger cause for capital. Furthermore, findings of the research proved that human capital such as health variable played an important role in influencing economic growth in Malaysia but not the education variable.