This research paper aims to measure the impacts of human capital on economic growth in Red River Delta by using regression model. The research focuses on identifying the human capital on the framework theory on growth models and examining the economic roles of the human capital regarding the representative parameters. The research shows that human capital has significant roles in economic growth in Red River Delta‟s provinces. In addition, the statistical test shows that the impacts of human capital are varied according to the GDP levels. From a policy perspective, the results urge Vietnam particularly the Red River Delta‟s provinces to have appropriate and focal policies for enhancing the quality of human capital.
Trang 1THE IMPACTS OF HUMAN CAPITAL ON ECONOMIC GROWTH
IN RED RIVER DELTA’S PROVINCES
maivu@neu.edu.vn
Dong Thi Yen Phuong 2
phuongphon.1412@gmail.com
Abstract:
This research paper aims to measure the impacts of human capital on economic growth in Red River Delta by using regression model The research focuses on identifying the human capital on the framework theory on growth models and examining the economic roles of the human capital regarding the representative parameters The research shows that human capital has significant roles in economic growth in Red River Delta‟s provinces In addition, the statistical test shows that the impacts of human capital are varied according to the GDP levels From a policy perspective, the results urge Vietnam particularly the Red River Delta‟s provinces to have appropriate and focal policies for enhancing the quality of human capital
Keywords: Economic growth model, Economic development, Economic growth,
Human capital
1 Introduction
Economic growth is an important goal for the most nations It is a necessary condition for development of a country and for modern economic restructuring and creating a foundation of human development At each stage of development, the growth pattern is marked by different emphases Vietnam has recorded remarkable achievements
on the development From the backward agricultural country in which a large rural population accounting for almost 80% of the total population is engaged in agriculture, Vietnam has gradually built up its facilities and technologies to accelerate industrialization and modernization
From 2001 to now, Vietnam's economic growth rate has continually maintained at a relatively high level compared to the region and the world In addition, it can be seen that there are the suitable changes of economic structure and steady increase of human development index (HDI) in Vietnam over the past 20 years The economic growth had achieved the significant rate of 7.51% per year around the period 5 years (2001-2005) This rate had been declined rapidly to 5.88% per year (2011-2015) In addition, Vietnam
1 Assoc Prof, Dr Vu Thi Tuyet Mai, Senior Lecturer, Planning and Development Department, National Economics University, Vietnam
2
Dong Thi Yen Phuong, Student, Planning and Development Department, National Economics University, Vietnam
Trang 2is facing high risk of middle-income trap due to the slow rise of a per capita income in recent years despite becoming a low-income country since 2008 To struggle with these challenges, Vietnam needs to have an appropriate growth model and a proper development orientation for sustainable development
There are three factors which were often analyzed to explain economic growth, including capital, labor, and TFP With regards to Vietnam, its growth achievements are mainly due to the accumulation of capital over the past 30 years However, this economic growth is no longer appropriate as the result of the ineffectiveness of capital In globalization, the physical capital still plays a crucial role but not much as in the past while the role of intangible capital, especially human capital, is growing The intangible capital is
a very necessary source of capital for companies as it is included in their value Human capital plays an increasingly important role in the process of economic development: (1) it includes the skills created by education and training so that human capital is a factor in the production process combined with tangible capital and raw (unskilled) labor to create products; (2) it is the knowledge to create creativity, a fundamental element of economic development (Mincer, 1989) In addition, some studies provided human capital as an input
to analyze economic growth and showed its positive effects like visible capital with a higher level However, if the investment in human capital is not good, it will cause negative impacts which lead to reduce the growth By approaching the GDP from the total income of the population, Borjas and George (2005) showed the positive effect of education on income Waines (1963) argued that despite the plenty of resources, the lack
of highly qualified labor force leads to slow development in developing countries Thus, Vietnam needs to shift to a technology-based growth model and focus on developing human capital as a result of the higher efficiency of human capital than the physical one
In Vietnam, there are also a number of studies on human capital from different perspectives, stages, and circumstances In particular, the most recent significant study on the role of human capital in Vietnam's economic growth is "Factors affecting the economic growth of Vietnam's provinces and cities in the period of 2000 - 2006 " of Tran Tho Dat This study suggests that there were different impacts of human capital on the economic growth of each region In the South East and South Central, human capital played an active role in regional economic growth In contrast, there was a negative effect at Red River Delta between 2000 and 2006 The results show that in the Red River Delta, where high qualified labor are trained, human capital has not had a key role However, is that true for the Red River Delta at the present? As an important region in Vietnam, should Red River Delta's provinces change the growth model to contribute to the overall growth of Vietnam?
In order to answer those questions, the study will examine the impact of human capital on the economic growth of the provinces at Red River Delta from 2011 to 2015
2 Research Methods
The study uses expanded Cobb-Douglas function to measure the role of human capital as well as other factors related to economic growth in the Red River Delta region 2011-2015
Trang 3With Z it = ( FI it , GnR it , Pr it )
Where i is the number of provinces (cities), t is the number of years, A is technological factor, Y is economic growth rate (using GDP value), K is physical capital,
H is human capital, L is number of employees, Z is a set of variables contributing to output
(including FI: Openness index, GnR: net non-agricultural sector income, Pr: poverty rate)
Besides, α, β, γ, and θ are the coefficients for the effects of exogenous variables
For the analysis of array data, there are three main regression models: Pooled-OLS model, fixed-effects model (FEM) and random-effects model (REM)
Pooled - OLS model : Y it = α 1 + β 1 X 1it + + β k X kit + U it
The model assumes that the intercept and the slope coefficient are stable over time In addition, independent variables must be exogenous variables that are independent
of the past, present, and future values of the random error Therefore, this model can lead
to phenomena such as multicollinearity and autocorrelation that reduce the accuracy of the regression results Considering the correlation among independent variables, if the pair of independent variables has a correlation coefficient more than 0.8, the model has a serious autocorrelation Also if there exist one or more linear relationships among some of the variables, the model will get multicollinearity In order to solve these defections, fixed effects model (FEM) or random effects model (REM) are used
Fixed effects model (FEM): Y it = Ci + β * X it + U it
variable X
maintained over time This assumption helps to find out the spatial effects of the data on the regression results, because of the particular characteristics
Random-effects model (REM): This model has the same starting point as the
To examine whether the random-effects model is appropriate, the Hausman test is
conducted This test helps answer the question of whether there is a correlation between
Trang 4the independent variables and the random factors of each unit in the model If there is a correlation, the fixed effects model (FEM) will be chosen and vice versa In case there is a
In this study, random-effects model is used to examine the impact of human capital
on economic growth, based on statistics in the Red River Delta from 2011 to 2015
3 Research results
3.1 The economic role of human capital
Research indicates that three criteria for measuring human capital, including expenditure on education (EC), life expectancy (LE) and mean years of schooling (of adults) (S) have positive impacts on economic growth of the Red River Delta provinces (Table 1, 2 & 3) In particular, the influence of education expenditure (EC) on economic growth has a coefficient 0.161 (Table 1) The coefficient of life expectancy (LE)
is 3.510 (Table 2) and of mean years of schooling is 1.420 (Table 3) The physical capital, labor force, non-agricultural income and trade openness have positive impacts on growth, while the rate of poverty is counterproductive
Table 1: Pooled-OLS regression with human capital measured by expenditure on
education (EC)
Source: STATA 12 results of the research team
Table 2: Pooled-OLS regression with human capital measured by life
expectancy (LE)
Source: STATA 12 results of the research team
Trang 5Table 3: Pooled-OLS regression with human capital measured
by mean years of schooling in the workforce (S)
Source: STATA 12 results of the research team
Of all three regression models with 3 criteria for measures, the conclusions about the coefficient of estimation are quite consistent Measured by education expenditure and life expectancy, the human capital represents a positive impact on economic growth in the Red River Delta (the coefficients are 0.199 and 3.107) Whereas mean years of schooling
of the workforce and trade openness variables are not reliable enough to conclude In addition, the results show that while physical capital, labor and net revenue of the non-agricultural sector increase, the economic growth rises; however, the increase in poverty rate has the opposite effect
3.2 Human capital and economic growth in the Red River Delta
Table 4 summarizes the results of the regressions of human capital based on 3 criteria for measures: education expenditure, life expectancy and mean years of schooling
in the Red River Delta
Table 4: Random-effects regression (REM) without FI
Dependent variable
lnY
Các thước đo vốn con người Expenditure on
education (lnEC)
Life expectancy (lnLE)
Mean years of schooling (lnS)
Source: STATA 12 results of the research team
Trang 6In the Red River Delta provinces, 1% increase in expenditure on education in the local budget will make the province's income raise by 0.191% /year with constant conditions According to actual data, Hung Yen province had the GDP of 2013 at 32,377,375 million VND and education expenditure was 1,234,286 million VND In 2014, expenditure on education was 1.336.837 million VND, that increased (1336837-1234286) / 1234286 * 100 = 5.8179% As the above result of regression, GDP in 2014 of Hung Yen would increase by 5.8179 * 0.191% = 1.092% And in fact, the GDP results of Hung Yen in 2014 reached 34.741.584 million VND, an increase by 1.07302% as compared with 2013
When human capital is measured by expenditure on education, the human capital effect is about 0.191% This result is quite high with provinces having a low percentage of education expenditure compared to local budgets which is a fact in the Red River Delta provinces, where the share of education expenditure in local budgets is only around 13-15%, the highest is only up to 20%
The result of life expectancy variable is also quite positive The coefficient 3.205 indicates that 1% increase in life expectancy makes the local income raises by 3.205% per year (constant conditions) For instance, in 2011, the life expectancy in Hai Duong was 74.1 years while the GDP reached 45,32,000 million VND Then the life expectancy is 74.446 years until 2012, an increase by (74.446-74.1) / 74.1) * 100 = 0.4676% According
to the regression, the GDP in 2012 of Hai Duong would increase to 0.4676 * 3.205% = 1.4985% and in fact, in 2012, the real statistic was 47,440,000 million VND This result state that population health has a significant impact on the formation of human capital in each individual It also shows that local public health concerns are one of the factors contributing to the improvement of the province's human capital as well as the positive effect on ecomomy growth
4 Conclusions and recommendations
By using a random-effects model, based on statistics in Red River Delta provinces, the reseach gets positive and significant results of human capital
On the one hand, the results of research emphasize the positive and theoretical relationship between human capital and economic growth It also points out this actual impact in case of Red River Delta provinces over period 2011 to 2015 as well as the different influences among regions
From policies perspective, the results urge Vietnam particularly the Red River Delta provinces to have appropriate and focal policies for enhancing the quality of human capital:
Regarding expenditure on education, it is really essential to improve its efficiency
in all provinces Despite the increase in education expenditure, its impact on economic growth is the smallest of the three criteria for measuring human capital As to invest more effectively, it is necessary to focus on renovating and modernizing training programs together with teaching methods Each province also needs to pay attention to invest in teaching equipment and facilities more suitably Besides, monitoring local budget should
be implemented usually
Trang 7For life expectancy, improving the quality of health care need to be concerned to enhance the health of the population Socialization of health care that let citizen directly participate in the monitoring process has been identified as a good solution to increase the efficiency of the public sector As a high educational and high living standards area in the whole country, Red River Delta should completely utilize this solution In addition, each province needs to invest in medical equipment and facilities, apply achievements of technology and implement policies to support, ensure the health care for the labor force
Finally, to extend mean years of schooling, education for children of school age needs to be renovated As children are the future workforce, who contribute decisively to the economic growth, investment in childhood education is the best way to get a long-term impact Besides, technology must become the top priority even in education and training The structure of training in Vietnam in general and the Red River Delta in particular still exist many shortcomings when the intellectual force with well training becomes more and more unemployed It is time to restructure the education and training structure with more effective policies from government and provinces
References
1 Anderson CA and M sJ Bowden (1965) Education and Economic
Development Chicago: Aldine Publish Co
2 Asghar N Awan A & Rehman H (2012) Human capital and economic
growth in Pakistan: A cointegration and causality analysis International Journal of
Economics and Finance 4 (4) 135-147
3 Barro RJ (1991) Economic growth in a cross section of countries Quarterly
Journal of Economics 106 407-443
4 Barro R & Lee JW (1997) Determinants of schooling quality Unpublished
manuscript Harvard University
5 Bauer PT (1957) The Economics of Underdevelopment Coutries Chicago:
University of Chicago Press
6 Becker Gary S (1975) Human Capital: A Theoretical and Empirical Analysis
with Special Reference to Education (2nd ed.) Chicago: University of Chicago Press
7 Cairncross A K (1963) Factors in Economic Development New York:
Frederick A Prager
8 Cobb CW & Douglas PH (1928) A theory of production American Economic
Review 18 (1) 139-165
9 Commonwealth Secretariat (1993) Foundation for the Future - Human
Resource Development (Report of the Commonwealth Working Group on Human Resource Development Strategies) London
10 Coulombe S & Tremblay JA (2001) Human capital and convergence in
Canada Journal of Economic Studies 28 (3) 154-180
11 Dinh Phi Tiger & Duc Hoang (2014) The impact of human capital on the
economic growth of the Mekong Delta Journal of Economic Development 27 (2) 02-16
Trang 812 Goode RB (May 1959) Add to the Stock of Physical and Human Capital
American Economic Review XLIX No 2 147-155
13 Goode RB (May 1959) Add to the Stock of Physical and Human Capital
American Economic Review XLIX No 2 147-155
14 Gujarati D (2004) Basic Econometrics 4th ed New York: McGraw Hill
15 Ha Thi Thieu Dao & Nguyen Dang Khoa (2014) The role of human capital for
economic growth in the South Central Coast Journal of Economic Development 283 3-19
16 Harbison FH (May 1962) Human Resources Development Planning
International Labor Review Vol 85 2-5
17 Hausman AJ (1978) Specification Tests in Econometrics Econometrica
46 (6) 1251-1271
18 Ilarbison F and CA Myers (1963) Education Manpower and Economic
Growth New York: McGraw-Hill
19 Kendrick SW (1956) Productivity Trends: Capital and Labor Review of
Eonomics and Statistics XXXVIII No 3 248-257
20 Lau LJ Jamison DT Liu SC & Rivkin S (1993) Education and economic
growth: some cross-sectional evidence from Brazil Journal of Development 41 45-70
21 Liu C & Armer JM (1993) Education effect on economic growth in
Taiwan Comparative Education Review 47 304-321
22 Low Linda Toh Mun Heng and Soon Teck Wong (1991) Economics of
Education and Manpower Development Issues & Policies In Singapore McGraw
Hill Singapore
23 Lucas RE (1988) On the mechanics of economic development Journal of
Monetary Economics 22 3-42
24 Martin MG & Herranz AA (2004) Human capital and economic growth in
Spanish regions International A dvances in Economic Research 10 (4) 257-264
25 Mincer J (1974) Schooling experience and earnings New York: Columbia
University Press
26 Mulligan CB & Sala-i-Martin X (2000) Measuring aggregate human
capital Journal of Economic Growth 5 (3) 215-252
27 Ng YC & Leung C M (2004) Regional economic performance in China: A
panel data estimation RBC Papers on China Hong Kong Baptist University
28 Nguyen Thi Tue Anh (2006) Impact of FDI on economic growth in
Vietnam Sida Project
29 OECD (2001) The well-being of nations: The role of human and social
capital OECD Publishing Paris
30 Romer PM (1986) Increasing returns and long run growth Journal of
Political Economy 94 1002-1037
31 Romer PM (1990) Human capital and growth: Theory and evidence Carnegie
Rochester Conference Series on Public Policy 32 251-286
32 Schultz TP (1961) Investment in human capital American Economic Review
51 1-17
Trang 933 Schultz TW (1963) The Economic Value of Education New York: Columbia
University Press
34 Siswantoro D & Tien M (2012) Analysis of the impact of growth and
poverty in Indonesia: Applying the heterogeneous regression Chinese Business Review
11 (7) 620-626
35 Dinh Thanh & Nguyen Minh Tien (2014) The impact of FDI on local
economic growth in Vietnam Economic Development Review HCMC University of
Economics HCM 283 21-41
36 Tran Tho Dat (2011) Human capital role in growth models Journal of
Economic Research 393 3-10
37 Yonemura Akio ed (2007) Universalization of Primary Education in the
Historical and Developmental Perspective Chiba Japan: Institute of Developing
Economies