Human Capital Investment and Economic Growth: A Study on ASEAN Countries

Using yearly data from January 1995 to December 2014, this paper explores the relationship between GDP per capita, education expenditure, health expenditure, and gross capital formation in Indonesia, Malaysia, the Philippines, and Thailand. In this paper, we used panel co-integration (Pedroni Panel Co-integration, Kao Residual Co-integration test, and Johansen Fisher Co-integration test), panel fully modified ordinary least squares (FMOLS), and granger causality. From the empirical result, we discovered that: 1) variables are co-integrated in the long run; 2) FMOLS results show that health spending and gross capital accumulation have a positive effect on economic growth; and 3) granger causality results show that a few of the variables have bidirectional and unidirectional causality.