Investment in Human Capital and Manufacturing Enterprise Productivity: Evidence from Pakistan

Abstract

This study examines the complex relationship between human capital investments and enterprise productivity within Pakistan's manufacturing sector, examining firm and district levels. Leveraging firm-level data from the census of manufacturing enterprises (2005-06) and district-level human capital indicators from social and living measurement surveys (2004-05 and 2006-07), this research informs evidence-based policy decisions. Employing OLS regressions and robustness checks, the study delves into the impact of human capital investment on enterprise productivity, accounting for district-level nuances, rural-urban differentials, and variations among enterprises of diverse sizes and capital intensities. Results unveil a subtle yet significant positive correlation between district-level human capital indicators and manufacturing enterprise productivity. Detailed analyses highlight the influential role of improvements in healthcare indicators in urban areas within districts on the productivity of large-scale manufacturing enterprises. Conversely, the impact of healthcare infrastructure in rural regions on overall productivity remains uncertain, particularly in the short term. The study emphasizes the necessity for tailored policies, recommending heightened investments in healthcare infrastructure in urban areas and a concentration on education capital in rural regions to bolster small manufacturing businesses. Policymakers are urged to differentiate interventions based on enterprise characteristics and the urban-rural divide to optimize human capital benefits across diverse manufacturing entities.