Determinants of Human Capital Development in Ethiopia: Implications to Education Policy

The role of human capital development in the era of globalization, knowledge-based economy, and technological development cannot be underestimated. This is mainly attached to the creative and adaptive capacity of human capital (HC) in bringing multidimensional changes and developments for the individual, organization, and the country at large. However, the scenario of HC in Sub-Saharan Africa and specifically in Ethiopia remains the lowest compared to the world standard. With this premise, this study is meant to analyze the macroeconomic determinants of HC development in Ethiopia using the Autoregressive Distributed Log (ARDL) model. Time series data from 1981 to 2018 was considered for the study. The empirical result of the study revealed that GDP per capita, openness, and education policy variables were found to have a positive and significant effect on human capital development in the short and long run. On the contrary, inflation has a negative effect on human capital development only in the short run. On the other hand, no evidence was found on whether the government’s expenditure and capital-labor ratio have significant effects on human capital development. Therefore, the Ethiopian government is strongly advised to investigate its educational investment strategies in such a way that it can promote the development of HC.