The Causality between Human Capital and Economic Growth in Oil Exporting Countries: Panel Cointegration and Causality

This paper investigates the causal relationship between education and GDP in a panel of 11 selected oil exporting countries by using panel unit root tests and panel cointegration analysis for the period 1970-2010. A three-variable model is formulated with oil exports as the third variable. The results show a strong causality from oil revenues and economic growth to education in the oil exporting countries. Yet, education does not have any significant effects on GDP in shortand long-run. It means that it is the oil and GDP that drives education in mentioned countries, not vice versa. So the findings of this paper support the point of view that it is higher economic growth that leads to higher education proxy. It seems that as the number of enrollments raise, the quality of the education declines. Moreover, the formal education systems are not market oriented in these countries. This may be the reason why huge educational investments in these developing countries fail to generate higher growth. By promoting practiceoriented training for students particularly in technical disciplines and matching education system to the needs of the labor market, it will help create long-term jobs and improve the country’s future prospects. JEL classifications: O40, O15, I20, C33, C10