222 Journal of Asian Development Studies Vol.

13, Issue 3 (September 2024)

Impact of Natural, Physical and Human Capital Formation on

Economic Growth in Pakistan: An ARDL Analysis
Mubasher Ishfaq1, Adnan Rasool2, Muhammad Muzammil Asghar 3,
Sana Karim4 and Rashid Ahmad5
https://doi.org/10.62345/jads.2024.13.3.19
Abstract
Attaining sustained economic growth is one of the key objectives of any country to improve the
well-being of its people and strengthen its economic position in the world. Capital formation
is one of the crucial factors of economic growth as it promotes productivity, efficiency, and
higher output growth. Therefore, this paper intends to analyze the impact of natural, physical,
and human capital formation on economic growth in Pakistan by employing annual time series
data from 1971 to 2020. Different econometric approaches such as unit root test, bound test,
and ARDL model are utilized to estimate the results. The study found that labor force
participation rate, physical capital, human capital, natural capital, FDI, and financial
development are positively associated with economic growth in Pakistan. Instead of FDI, all
the variables are found to be significantly related to economic growth in Pakistan. Considering
the study’s findings, it is concluded that capital formation is essential to progress the economy
of Pakistan, so policymakers must concentrate on investing in physical infrastructure,
improvement in health and educational facilities, and efficient utilization of natural resources
to promote economic growth.
Keywords: Capital Formation, Natural Capital, Physical Capital, Human Capital, FDI,
Economic Growth, ARDL.

Introduction
A country is affluent if it has effective economic growth-promoting policies, development
initiatives, and human and financial resource mobilization techniques. Human resources are
essential for greater economic development and progress to alleviate poverty (Sheikh et al.,
2020), promote human development, and improve living conditions. Education and health are,
therefore, key components in human capital formation (Shah et al., 2021a; Khatoon et al., 2021;
Shah et al., 2021b). HC refers to the mental and physical skills people have earned via
education, training, healthcare, and spiritual practices. Human capital generally refers to the
ability of people to increase efficiency and productivity via education, skills, good health, and
other factors (Todaro, 2002). Romer (1986) and Lucas (1998) highlight human capital
investment as a key contributor to economic progress. These models provide sustainable
growth endogenously from individual economic actors. The ability to attract other elements,
such as physical investment, that also significantly contribute to the growth of income per

1
Assistant Professor, Department of Economics, Govt. Willayat Hussain Islamia Graduate College Multan,
Pakistan. Email: [email protected]
2
MS Scholar, Faculty of Commerce, Law and Business Administration, Bahauddin Zakariya University Multan
(Sub Campus Layyah), Pakistan. Email: [email protected]
3
Research Scholar, School of Economics, Bahauddin Zakariya University Multan, Pakistan.
Corresponding Author Email: [email protected]
4
MPhil Scholar, Department of Economics, Ghazi University, DG Khan.
5
Assistant Professor, School of Economics, Bahauddin Zakariya University Multan, Pakistan.

Copyright: ©This is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license.
Compliance with ethical standards: There are no conflicts of interest (financial or non-financial). This study did not receive any funding.
223 Journal of Asian Development Studies Vol. 13, Issue 3 (September 2024)

capita, can be another human capital function. Since it has become clear that the efficient use
of physical capital itself is based on human capital. The rate at which extra physical capital
may be efficiently used is constrained if there is a lack of HC investment since the efficient use
of physical capital requires technical, professional, and administrative personnel (Rahim et al.,
2021).
The theory of EG can be understood as factors affecting the boost in output per capita in the
long term. According to classical growth theory, capital expansion is crucial to output growth
because it affects how quickly output grows. Adam Smith (1776) asserts that the amount of
overall output is affected by the stock of capital in two ways. The first influence is direct; capital
accumulation directly affects the output; the more input there is, the greater the output. The
second factor is the indirect impact of capital on output in the shape of higher per capita
productivity over the potential for greater specialization and labor division as these factors
encourage higher productivity (Reza & Widodo, 2013). Gross fixed capital formation (GFCF)
is employed as the most common proxy of physical capital. GFCF contributes significantly to
GDP. The main three sectors that form GFCF are the public, private, and general government
sectors. Both public and private investments are essential to favors productivity in the private
sector in order to boost economic progress (Barro, 1991).
Conversely, natural resources are imperative for the economy but their effective utilization
depends on the human resources and the level of technology in the country. Humans can grow
economies and social structures to utilize other resources effectively, countries must increase
human potential through quality improvement, skill development, and literacy to reduce
unemployment and promote economic growth (Ali et al., 2012). The availability of NC has an
influence on economic progress via various pathways, which can either be a curse or a gift for
some countries. Natural resources that make up the abiotic portion of nature, such as minerals,
water, and land, are thought to influence growth. Effective administration of NC can spur EG
(Papyrakis & Gerlagh, 2004) and the revenue from the mineral, coal, and oil resources can be
invested in other types of capital to promote economic growth (Sachs & Warner, 1997; Amini,
2018).
Despite being listed as one of the most crucial sectors in growth and development-related
programs, human capital is one of the most underdeveloped sectors in Pakistan. Pakistan Vision
2025 wants to significantly increase educational levels and improve quality, which is similar
to earlier policy statements. However, it is challenging to locate data demonstrating progress
in this direction. Pakistan's economic growth is characterized by slowness and volatility, with
the GDP growth rate falling to -1.27 percent in 2020 due to the COVID-19 shocks. However,
due to a strong economic recovery, the GDP growth rate rose to 6.51 percent in 2021. However,
after that, political instability and high inflation pressure led to a decline to 4.767 percent in
2022 and -0.0048 percent in 2023 (Pakistan Economic Survey, 2024). Despite abundant natural
resources, strategic location, and large labor force, the country’s inability to effectively harness
its natural, physical, and human capital has hindered economic progress. Therefore, our study
explores the influence of NC, PC, and HC on EG of Pakistan. By considering the effect of
capital formation on EG, the study advises approaches to efficient utilization of resources,
prioritizes investment in physical, health, and educational infrastructure, and addresses
development challenges, ultimately augmenting sustainable economic growth in Pakistan.
224 Journal of Asian Development Studies Vol. 13, Issue 3 (September 2024)

Figure 1: Trends of GDP Growth, GCF, Life Expectancy, and Natural Resources Rents of
Pakistan

Source: Authors Creation Using WDI Dataset

Literature Review
The literature review on the relationship between capital formation and economic growth looks
at a range of academic viewpoints and empirical research, with a particular emphasis on the
contributions made by investments in human and physical capital to enhance productivity,
technical developments, and sustainable economic development. Scholars investigate many
models that associate capital accumulation with economic growth in both developed and
developing nations. The literature review on the relationship between capital formation and EG
is given as follows:

Relationship between Human Capital and Economic Growth

The study by Duan et al. (2022) explored the link between human capital, governance,
economic freedom, and EG using data from BRICS countries from 2000 to 2018. This paper
showed an inverted U-shaped link between EG and HC. Furthermore, the effect of HC on EG
in the BRICS was optimistically moderated by governance. Similarly, Khatoon et al. (2021)
explored the association between HC and EG utilizing data from 1990 to 2019. The results
demonstrated that HC has optimistic effects on EG. In addition, Khan and Chaudhry (2019)
explored the impact of HC on EG and employment in developing countries from 1996 to 2018.
The outcomes exhibited that human capital characteristics were crucial and served as a catalyst
for growth and job possibilities in developing countries. The study by Usman & Adeyinka
(2019) analyzed the influence of the HC on EG using data from 1980 to 2016 in the ECOWAS
member nations. Their study showed a positive impact of human capital on EG. Furthermore,
Ogundari and Awokuse (2018) discovered the influence of HC on EG in SSA using panel data
between 1980 and 2008. The outcomes demonstrated that HC contributes positively to the EG.
225 Journal of Asian Development Studies Vol. 13, Issue 3 (September 2024)

In the case of Nigeria, Adeyemi and Ogunsola (2016) investigated the influence of the
formation of HC on EG utilizing data from 1980 to 2013. Their study showed a statistically
negligible optimistic long-run association between education, life expectancy rate,
expenditures on education, capital, and EG. Another study in Pakistan accompanied by Khan
(2016) observed the influence of female HC on EG utilizing data from 1972 to 2012. Their
study demonstrated a direct and substantial long-run link between female HC and EG whereas
female HC has a beneficial but insignificant short-run effect on EG. Keeping in view the
literature reviews the following hypothesis is developed:
H1: There is a positive relationship between human capital formation and economic growth

Relationship between Physical Capital Formation and Economic Growth

Asghar et al. (2024) examined the economic influence of the construction sector in Pakistan
from 1961 to 2020 in Pakistan. Their study found that GFCF, construction sector,
manufacturing sector, agriculture, and services sector were contributing factors of EG in
Pakistan. The study conducted by Garzarelli and Limam (2019) explored the link between
physical capital (PC) formation and total factor productivity in 36 SSA countries between 1996
and 2014. Results showed that PC contributes more to overall growth than total factor
productivity. Another study in South Africa was accompanied by Meyer and Sanusi (2019) that
explored the causality between investment, employment, and EG using data from 1995 to 2016.
The results revealed that domestic investment, employment, and EG had a long-term link. The
study suggested that improved infrastructure and economic diversity must be enhanced to
improve economic growth. In addition, Zahir and Rehman (2019) explored the effect of the
trade deficit, exchange rate, and GFCF on the EG of Pakistan’s economy from 1986 to 2013.
The outcomes showed that trade deficit has a negative but substantial influence on GDP while
GFCF has an optimistic and substantial influence on GDP. Additionally, the exchange rate has
a negligible and favorable influence on GDP. One more study in Pakistan was conducted by
Ali (2015) that studied the effect of GFCF on EG in Pakistan employing data from 1981 to
2014. Their study showed that physical capital positively and significantly influenced the EG.
The analysis also concluded that the availability of skilled labor can increase productivity, and
the export of finished goods can spur national EG. Keeping in view the literature reviews the
following hypothesis is developed:
H2: There is a positive relationship between physical capital formation and economic growth

Relationship between Natural Capital and Economic Growth

The study by Khan (2021) analyzed the effect of natural resources on EG in Pakistan from
1972 to 2013. The outcomes showed that NC has a favourable influence on EG while trade
openness was negatively related to the EG in Pakistan. In addition, Hayat and Tahir (2021)
analyzed the influence of natural resources on EG using data from 1970 to 2016. The study
showed an optimistic and statistically substantial link between natural resources and EG.
Furthermore, Shabbir et al., (2020) observed how natural resources affect EG in Pakistan.
Based on data from 1972 to 2016, the results displayed that population growth and
deforestation harm GDP while renewable water resources have a favourable impact on EG.
Moreover, Sefemo and Segobai (2019) observed the relationship between NC and EG in
Botswana employing data from 1994 to 2016. The analysis exhibited that the value of mineral
assets used as a stand-in for natural capital greatly impacts Botswana's economic growth. The
mining industry continues to be the foundation of the economy despite efforts by the
government to diversify away from minerals. The study advised the nation to use mineral
revenue to diversify its asset portfolio to strengthen PC and HC and archive sustained EG. The
study by Amini (2018) examined how natural resources affect EG in developed and developing
countries from 1996 to 2010. The results demonstrated that the EG was not significantly
226 Journal of Asian Development Studies Vol. 13, Issue 3 (September 2024)

impacted by natural resources. Keeping in view the literature reviews the following hypothesis
is developed:
H3: There is a positive association between Natural capital formation and EG
Different studies analyzed the impact of capital formation on EG. It is observed in the literature
that HC, NC, and PC play an imperative role in influencing the country's EG. Most of the
studies analyzed the effect of HC formation on EG. However, limited literature was available
on the influence of physical and natural capital on EG, especially in Pakistan, so this study
considers three types of capital HC, PC, and NC as factors of EG in Pakistan. The outcomes of
the study will provide significant implications for policymakers on how capital formation
influences the EG in Pakistan and what steps need to be taken to boost the level of HC, natural
capital, and PC to enhance the level of EG.

Data and Methodology

This paper used the yearly data of Pakistan from 1971 to 2020 to examine the impact of natural,
physical, and HC on EG in Pakistan. The data was collected from World Development
Indicators. The neoclassical model demonstrates that EG is mainly caused by labor and capital,
therefore, the study used both labor and capital as elements of EG:
Output = f(Labor, Capital) (1)
However, to better comprehend the influence of capital on EG, this study categorized capital
into physical, human, and natural capital. In addition, the FDI and FD are added to the model
as both of these factors are also important in influencing the EG. Therefore, the following
model is established to evaluate the influence of NC, PC, and HC formation on EG in Pakistan:
EGt  o  1LFPRt   2 PCt  3 HCt   4 NCt  5 FDI t  6 FDt  ut (2)
Where EG refers to economic growth, LFPR indicates labor force participation rate, PC refers
to the physical capital, HC indicates human capital, NC specifies natural capital, FDI refers to
foreign direct investment, FD indicates financial development and ui indicates the error term.

Figure 2: Methodological Framework

For data analysis, different data estimation techniques are employed. Firstly, the unit root
estimation is accompanied to assess the stationarity level of variables. The ADF (Augmented
227 Journal of Asian Development Studies Vol. 13, Issue 3 (September 2024)

Dickey-Fuller) test is applied to determine the integration order of variables. Secondly,

cointegration analysis is conducted using the ARDL bound test. Thirdly, the autoregressive
distributive lag model (ARDL) is utilized to evaluate the long-run coefficient of variables. The
benefit of this model is that it also offers a short-run error correction form of the model. Another
benefit of the ARDL model is that it can also be applied when variables have mixed integration
order (Pesaran et al., 1999). Additionally, the ARDL estimates provide reliable outcomes in the
absence of heteroscedasticity and serial correlation in a model. Therefore, different model
diagnostic tests are employed to address the issues of autocorrelation, heteroskedasticity,
residual normality, and model misspecification. The following is the equation of the ARDL
long-run model:
( EG)t    1 ( EG)t 1   2 ( LFPR)t 1  3 ( PC )t 1   4 ( HC )t 1  5 ( NC )t 1   6 ( FDI )t 1   7 ( FD)t 1 
a1 a2 a3 a4 a5 a6
 1( EG )t i    2 ( LFPR)t i    3( PC )t i    4 ( HC )t i    5 ( NC )t i    6 ( FDI )t i
i 1 i 0 i 0 i 0 i 0 i 0
a7
   7  ( FD )t i   t (3)
i 0
Where β2, β3,β4,β5, and β6 are the long-run coefficients of LFPR, PC, HC, NC, FDI, and FD
respectively while εt is the error term.
The short-run ECM ARDL model is as follows:
a1 a2 a3 a4 a5 a6
( EG)t     1( EG)t i   2 ( LFPR)t i   3( PC )t i   4 ( HC )t i   5( NC )t i   6 ( FDI )t i
i 1 i 0 i 0 i 0 i 0 i 0
a7
  7 ( FD)t i   ECM t 1   t (4)
i 0
Where λ2, λ3, λ4, λ5, and λ6 are the short-run coefficients of LFPR, PC, HC, NC, FDI, and FD
respectively, ω is the coefficient of error correction term, and εt is the error term.

Table 1: Description of Variables

Variables Descriptions
EG Economic growth GDP Per capita (Current LCU)
LFPR Labor force participation rate Labor force/working-age population
PC Physical capital Gross capital formation growth rate
HC Human capital Life expectancy at Birth
NC Natural capital Total Resource Rents Percentage of GDP
FDI Foreign direct investment Inflows FDI Inflows Current US$
FD Financial development Domestic Credit to Private Sector (Percent
of GDP)

Data Analysis
Descriptive Analysis
Table 2 displays that the mean values of EG, LFPR, PC, HC, NC, FDI, and FD in Pakistan are
6.162, 48.974, 3.593, 61.233, 1.235, 19.166, and 27.528, respectively. Likewise, the maximum
values of EG, LFPR, PC, HC, NC, FDI, and FD are 7.391, 52.363, 18.532, 67.428, 2.617,
22.444, and 30.893, respectively. In contrast, the minimum values of EG, LFPR, PC, HC, NC,
FDI, and FD are 4.598, 29.960, -9.696, 53.192, 0.181, 0.000, and 23.974, respectively. The
distributions of EG and NC are positively skewed whereas the distributions of LFPR, PC, FDI,
and FD are negatively skewed. Lastly, the distributions of EG, PC, NC, HC, and FD are
platykurtic while LFPR and FDI have leptokurtic distributions.
228 Journal of Asian Development Studies Vol. 13, Issue 3 (September 2024)

Table 2: Descriptive Estimates

Variables Mean Maximum Minimum S.D. Skewness Kurtosis
EG 6.162 7.391 4.598 0.700 0.009 2.321
LFPR 48.974 52.363 29.960 4.797 -3.395 13.424
PC 3.593 18.532 -9.696 6.304 -0.106 2.805
HC 61.233 67.428 53.192 4.151 -0.244 1.925
NC 1.235 2.617 0.181 0.569 0.703 2.895
FDI 19.166 22.444 0.000 3.384 -3.780 21.741
FD 27.528 30.893 23.974 2.029 -0.073 1.926

Correlation Analysis
The correlation coefficient between the pairs of variables is given in Table 3. The findings
exhibit that EG is positively correlated to the LFPR (0.465), human capital (0.875), natural
capital (0.573), foreign direct investment (0.748), and financial development (0.879) while
negatively correlated to the physical capital (-0.041).

Table 3: Correlation Matrix

Variables EG LFPR PC HC NC FDI FD
EG 1.000
LFPR 0.465 1.000
PC -0.041 0.121 1.000
HC 0.875 -0.460 0.139 1.000
NC 0.573 0.404 0.081 -0.547 1.000
FDI 0.748 0.314 -0.017 -0.666 0.495 1.000
FD 0.879 0.486 -0.120 -0.992 0.573 0.709 1.000

Unit Root Analysis

Unit root analysis is accompanied by employing the ADF test and estimates are given in Table
4. The variables LFPR, PC, and FDI are turned to be stationary at level. In contrast, the
variables EG, HC, NC, and FD are integrated at 1st difference. Hence, the mixed integration
order advises that the ARDL model can be used for the parameter estimations.

Table 4: ADF Test Estimates

Level 1st Difference
Variables Outcomes
T-stat Prob. T-stat Prob.
EG -- -- -6.808 0.000 I(1)
LFPR -5.590 0.000 -- -- I(0)
PC -5.464 0.000 -- -- I(0)
HC -- -- -1.949 0.050 I(1)
NC -- -- -7.453 0.000 I(1)
FDI -4.061 0.003 -- -- I(0)
FD -- -- -4.829 0.0000 I(1)
229 Journal of Asian Development Studies Vol. 13, Issue 3 (September 2024)

Cointegration Analysis
ARDL bound test is vital in analyzing a model's long-run cointegration among variables. Table
5 shows that the F-statistic value (7.6190) is higher than upper bound values at the 1 percent
level, suggesting a long-run cointegration between EG, LFPR, PC, NC, HC, FDI, and FD.
Therefore, we can proceed further to the long-run estimation of the parameters.
Table 5: Bound Test Analysis
Statistic Value K
F 7.6190 6
Significance I0 Bound I1 Bound
10% 2.12 3.23
5% 2.45 3.61
2.5% 2.75 3.99
1% 3.15 4.43

ARDL Analysis
The ARDL long-run estimates of NC, PC, and HC impacts on EG in Pakistan are reported in
Table 6. First, analyzing the association between PC and EG, the results show that physical
capital is positively and significantly (at a 1 percent level) linked with Pakistan's EG. The PC’s
coefficient directs as the PC surges by a unit, the EG also improves by 0.0145 units. It
recommends that improvement in physical capital in a country enhances labor productivity
(Shah et al., 2021b), physical infrastructure, and job creation which are key in promoting EG.
Positive association between PC and EG was also confirmed by Asghar et al., (2023), Khan
(2021), Shah et al., (2020), and Shahzad (2015). In addition, the findings also display that HC
is positively and significantly (at 1 percent) related to EG. The coefficient HC exhibits as it
augments by a unit, and the EG also progresses by 0.3553 units. It infers that HC formation
improves the specialization, productivity, and efficiency of inhabitants, which in turn leads to
the promotion of the EG. Similar outcomes were also established by Pelinescu (2015), Shahzad
(2015), and Ali et al., (2012). Furthermore, a positive and significant link is also established
between NC and EG. The NC’s coefficient shows EG augments by 0.4827 units as NC
increases by a unit. It points out that high natural resources can lead to attracting more capital
inflows, development of new industries, and promoting agriculture productivity which are
crucial to promote EG. The positive link between NC and EG was also established by Behbudi
et al., (2010) and Erum & Hussain (2019). FD is also essential to improve the economic
progress of any country. The analysis shows that FD is positively and significantly linked with
Pakistan's EG. The FD’s coefficient displays that as it upsurges by a unit, the EG also upturns
by 0.7458 units. FD in a country improves credit facility availability so that people can do
economic transactions timely and effective. Improvement in credit facilities also increases the
investment level (Iram et al., 2024) that are crucial in promoting employment opportunities and
EG in a country. The positive relationship between FD and EG was also confirmed by Khan
(2021), and Asghar et al., (2024b).
Table 6: ARDL Long-Run Estimates
DV: Economic Growth
Variables Coefficient S.E. t-Statistic Prob.
LFPR 0.0239 0.0180 1.3232 0.2007
PC 0.0145 0.0049 2.9217 0.0084
HC 0.3553 0.1381 2.5721 0.0182
NC 0.4827 0.1155 4.1774 0.0005
FDI 0.0008 0.0348 0.0240 0.9811
FD 0.7458 0.2260 3.2985 0.0036
C -39.7864 15.4798 -2.570216 0.0183
230 Journal of Asian Development Studies Vol. 13, Issue 3 (September 2024)

In ARDL short-run analysis, the error correction term is important to analyze. The ECM term
shows the convergence towards equilibrium if any short-run disturbances occur. The value of
the ECM term should be negative and also statistically significant. The negative value of the
ECM term exhibits convergence to the equilibrium, while the positive value exhibits
divergence to the equilibrium. Table 7 displays the outcomes of ARDL short-run estimates. It
is discovered that ECM has a negative (-0.5377) and statistically significant value. It implies
that the errors become adjusted at the rate of 53.77 percent when transitioning from the short-
run to the long-run equilibrium.

Table 7: ARDL Short-Run Estimates

Dependent Variable: EG
Variables Coefficient S.E. t-Statistic Prob.
D(LFPR) 0.0058 0.0033 1.7767 0.0908
D(PC) 0.0034 0.0012 2.7125 0.0134
D(HC) -12.3721 3.6600 -3.3803 0.0030
D(NC) 0.0912 0.0307 2.9690 0.0076
D(FDI) 0.0192 0.0200 0.9615 0.3477
D(FD) 0.5865 0.2019 2.9042 0.0088
ECM(-1) -0.5377 0.1595 -3.3707 0.0030

Model Diagnostic Analysis

The issues of heteroskedasticity, autocorrelation, residuals normality, and model
misspecification are examined in a study. The Breusch-Pagan-Godfrey (BPG) and Breusch-
Godfrey (BG) tests indicate the absence of heteroskedasticity and autocorrelation in a model,
respectively. Similarly, Jarque-Bera (JB) tests indicate the residuals are normally distributed
and the Ramsey Reset (RR) test specifies the model is correctly specified.

Table 8: Model Diagnostic Analysis

Issue Test Statistic Prob. Outcomes
Heteroskedasticity BPG 1.3501 0.2486 Absent
Autocorrelation BG 1.8912 0.1054 Absent
Residual Normality JB 1.0507 0.5913 Normally Distributed
Model Misspecification RR 1.8305 0.1288 Correctly Specified

Lastly, recursive residuals of CUSUM and CUSUM of squares are used to assess the model
stability. Figure 3 shows that the estimated line is within the upper and lower bound values at
a 5 percent significance level, so we can conclude that the model used in the study is
dynamically stable.
Figure 3: Model Stability
1.6
15

10 1.2

5
0.8

0
0.4
-5

0.0
-10

-15 -0.4
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

CUSUM 5% Significance CUSUM of Squares 5% Significance

231 Journal of Asian Development Studies Vol. 13, Issue 3 (September 2024)

Conclusion and Policy Implications

Promoting the growth of the economy is the strategic ambition of every country in the world
as sustained EG can reinforce the country’s global economic position. Therefore, analyzing
what aspects are responsible for the EG of a country is key. The current study considers the
role of NC, PC, and HC in impacting the EG of Pakistan by employing data from 1971 to 2020.
The results show that LFPR, PC, and FDI are established to be stationary at level. In contrast,
the variables EG, HC, NC, and FD are integrated at 1 st difference. Similarly, the bound test
confirms the existence of long-run cointegration among EG, LFPR, PC, NC, HC, FDI and FD.
The ARDL long-run estimates show the positive association between HC and EG as imprudent
in HC promotes the specialization, productivity, and efficiency of inhabitants which are
imperative to improve the economy. Similarly, PC and EG also turn out to be positively
associated indicating that improvement in physical capital can enhance labor productivity,
physical infrastructure, and job creation which are key to promoting EG. In addition, the
positive link between NC and EG is also established in a study suggesting that high natural
resources can lead to attracting more capital inflows, and the development of new industries
that can augment the economy of any country. The paper also found a positive and significant
relationship between FD and EG. Lastly, the positive but insignificant influence of LFPR and
FDI on EG is established in a study. Considering the study's findings, it is concluded that capital
formation is imperative to promote Pakistan's economic progress, so policymakers must
concentrate on promoting the capital of a country.
Our study has also some policy implications. First, to increase life expectancy, policymakers
must focus on the health sector of the economy because a healthy person may contribute more
effectively to economic activity. Poor people should have access to basic healthcare facilities.
Additionally, the government needs to fund facilities for greater sanitation, clean water, and
child-mother healthcare. Second, to increase the physical capital of a country government
should invest in projects that increase the employment opportunities for the inhabitants of a
country, in this way economic growth of a country could also be boosted. Third, the effective
management of natural resources should be maintained to get more desirable results. Fourth,
the financial sector should be strengthened to increase the provision of credit facilities to the
people. Lastly, government investment in education should be increased especially in rural
areas. Higher-level technical institutions must be developed to increase the country’s effective
and productive labor force which can have a long-term multiplicative effect on the economy.

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