Public Expenditure on Human Capital Investment and GDP Nexus: Empirical Evidence Based on NARDL Approach

Understanding public expenditures on human capital investment and GDP linkages is critical for countries' future. Within the scope of the reviewed literature, no study analyzes the asymmetric effects of public expenditures on human capital investments on Türkiye's GDP. Since there is no linear relationship according to the A-ARDL model using quarterly data for the period 2004-2019, the following results were documented in the analysis based on the NARDL model: (i.) Human capital investments are asymmetrically cointegrated with GDP but not linear. (ii.) A nonlinear linkage exists among GDP and social protection and health expenditure. Raises in health expenditures increase GDP more than decreases. However, there is a linear linkage between GDP and education expenditures. These findings are empirical evidence that education and health expenditures create positive externalities. (iii.) While both Keynes' hypothesis and Wagner's law are valid for health expenditures and social protection expenditures, only Wagner's law is valid for education expenditures. As a result, Türkiye, an emerging country that is not rich in natural resources, should give more importance to the efficiency of resources without ignoring the social state functions to increase its level of development. Key Words: Public expenditure, Human capital investment, NARDL, Keynes' hypothesis, Wagner's law JEL Classification: C32, H50, O15