Impact of institutional quality and human capital creation on economic growth in Bangladesh: evidence from an ARDL approach

Abstract

PurposeThis study examines the impact of institutional quality (INQ) and human capital creation (HCC) on economic growth (EG) linkage in Bangladesh using an ARDL approach.Design/methodology/approachThis study uses time-series annual data over the period 1990–2019. It formulates an INQ index based on international country risk guide (ICRG) data, employs public education outlay and expenditure on health data each as a portion of real gross domestic product (GDP) to measure HCC, while an increase in real GDP is used as a proxy for EG. It employs the ARDL technique and Toda–Yamamoto (T-Y) causality check to realize the study.FindingsThe ARDL analysis divulges that the variables have a long-run association; INQ affects long-run EG positively; expenditure on health stimulates EG rate in the long run, but does not impact the latter in the short-run; whilst government spending on education impacts long-term EG rate negatively but positively in the short-term. The T-Y causality test results reveal a feedback relationship between INQ and EG, and one-way causation from health expenditure to EG rate, and education outlay to EG rate and authenticate the ARDL estimation results.Originality/valueThe study is original. The novelty of the study is to employ an INQ index using the ICRG data on 12 different components which are converted into a single index through principal component analysis.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-12-2021-0732