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

Purpose - This 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/approach - This 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. Findings - The 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/value - The 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.