Contribution of Human Capital Development to Economic Growth in the Nepalese Manufacturing Sector

Bashu Dev Dhungel, Pitambar Lamichhane


The manufacturing sector is the engine of economic growth. However, Nepal is unable to make rapid development of the manufacturing sector due to lack of skilled human capital. Therefore, the main purpose of this study is to investigate the contribution of human capital development to economic growth in the manufacturing sector of Nepal. Time series data from FY1995/96 to FY2021/22 were used. The instrumental variables method was used to avoid simultaneous equation bias. The adult regressor literacy rate affects manufacturing real gross domestic product. Similarly, at the same time, other variables such as real export and labor employment in the manufacturing sector affect the dependent variable. Therefore, there is joint dependency between real GDP and human capital. The results of the instrumental variables method shows that human capital development has a positive and significant impact on manufacturing real gross domestic product in Nepal. This study reveals that adult literacy rate and employment in the manufacturing sector are major variables affecting the rise in manufacturing real GDP in Nepal. This study is applicable for government to increase the investment in education to increase the literacy rate and train employed people to increase human capital’s productive capacity for the development of the Nepalese manufacturing sector. This study enhances the literature by assessing the role of human capital development in economic growth in the manufacturing sector of Nepal.


Keywords: human capital, adult literacy rate, economic growth, manufacturing sector.



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