One is an exogenous variable which depends upon workforce

One of the basic objectives of economics is to provide welfare to people most efficiently. Human capital can be defined as the skills, knowledge and other intangible assets which can be used to produce some economic value. A high number of researchers have revealed that human capital plays a big role in economic growth. Mincer (1958) first theorized human capital as an important proponent of economic growth, as it raises output. This theory was used as a basis for future studies on economic growth. Mankiew et al. (1992) utilize secondary education enrollments. Barro and Lee (1993) and Bosworth et al. (1995) have used average years of schooling. Education was viewed as the core factor of human capital by macroeconomists, while health held equal stature according to microeconomists as labour needs to be healthy to work efficiently. (Romer, 1986, 1990; Lucas, 1988; Rebelo, 1991) emphasized that human capital formation was a major factor which explains difference in growth performance of developed and under-developed countries. Classical theory suggests that labor productivity is an exogenous variable which depends upon workforce in terms of capital and technological advances. It fails to capture the potential growth of productivity due to education, health or training. Studies on theory of market value have shown that there is an influence of intangible assets, such as R&D, intellectual properties of companies and patents which lead ultimately to economic growth. Companies that are deemed as the spine of the biggest economies were born where education and health are of top quantity and quality. This has been observed throughout the past two decades, as companies raised huge amount of assets through developing technologies, which came through an incubating environment. Companies such as Apple, Google, Microsoft, have created industries and made leaps in technological advances, enjoy assets worth more than most countries. This influx of money then leads to higher economic growth of their countries. Tesla for a more recent example, have completely changed the automotive industry by developing fully electric production cars. This technology for mass production was deemed impossible for a decade into the future. The same can be said for SpaceX.The incredible economic growth of countries with very few natural resources, the likes of which relied on importing their input materials. Japan, Taiwan and other countries of the sort relied heavily on their human capital formation and bore the fruit, as they attained high growth rate and therefore greater welfare. USA, Germany, Japan have had persistent high economic growth over a 100 years, and if growth of land and physical capital is taken into account there should’ve been a rapid decrease in returns and eventually no growth. The persistence can therefore be credited to technological advancement, which came through formation of human capital. This scientific advancement gives high value to education, training and other factors leading to it.The economic effects of population health can be seen both at the individual and macroeconomic levels. There is consensus of health’s effect on economic growth, however the magnitude of the effect is the area where there exists a difference of opinions.  Developing countries have more human capital as compared to physical capital, so more emphasis should be given to developing labor quality. Pakistan has a very large labor population but had very low spending on health and education throughout its history. In the past decade health expenditure revolved around .9% while education averaged 2.4%. Comparing two neighboring countries Iran and India, Pakistan ranks below both on life expectancy and average years of schooling. Although it ranked closely on life expectancy at birth with India but trails both countries on education and health by some margin according to the human development index. It is currently ranked at 147 while India and Iran rank at 131 and 69 respectively. Health and Education indicators alone fail to capture development of capabilities and skills of labor, so a broader measure is needed to study the effect of human capital on economic growth. Variables such as unemployment, protection of property rights, social security affect development of human capital. Unemployment generates a negative effect on human capital, as there is lack of area to apply/develop skill and knowledge acquired by the individual. Social security has the same effect as people are demotivated to work/study in institutions due to terrorism/crime. This study tries to capture the effect of these variables on economic growth of Pakistan.Literature review:The term human capital was first coined by (Mincer, 1958), where he viewed labor force as factor which can be invested in to increase output. He defined human capital as “the stock of knowledge, habits, social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value”.The effect of human capital on economic growth is inconsistent throughout literature, as some papers show a strong significant impact while other papers report a negative relation. In this section, a review of previous literature will be cited and cause of inconsistency will be adressed.