Human Capital Accumulation and Long Term Economic Growth : The Case of Egypt

Origins of the economic growth literature based on the Solow and Lucas models attribute human capital accumulation to long run balanced growth path of an economy. This work has the objective of empirically testing the dynamics of human capital accumulation for the case of the Egyptian economy spanning half a century of its performance, i.e. from 1952 until 2002. The dynamics of the extended Solow-Lucas growth model are tested with physical capital showing equilibrium convergence towards long run growth whereas human capital is shown to cyclically diverge from its long run equilibrium path. However, labor efficiency returns from human capital was estimated at a significant level of 15%, compared to 43% for physical capital. On the other hand, human capital was decomposed into basic (primary and preparatory) and non-basic (secondary) educational attainment and empirically tested for growth causation using Granger non-causality and error-correction modeling. Results show non-basic educational attainment yielding non-significant causation to long run economic growth (i.e. secondary education is “weakly exogenous” to economic growth) while basic education was shown to yield high economic significance and a higher rate of marginal productivity to output creation. Implications regarding this finding imply rising social costs and allocative inefficiency for the economics of human capital beyond the basic stage of education. In essence, the policy of “free education for all” is ineffective beyond the basic stage of education