Human Capital Accumulation in Pakistan in the Light of Debt, Military Expenditure and Politics

Abstract

We investigate factors responsible for low public sector human capital investment in Pakistan. The debt servicing burden coupled with a rising debt stock can impact on human capital expenditure. To account for this, a Debt Net Cost Index is developed to measure the evolving net cost of public debt starting in 1960. Political factors examined are regime type, frequency of elections, quality of democracy, international aid preferences, elite capture in terms of industrial concentration, military burden and external hostility indices. We find that for the period as a whole from 1960 onwards, political factors dominate economic explanations such as the burden of debt servicing in accounting for low levels of human development expenditure. Only during episodes of civilian rule do economic factors in the form of the debt servicing burden become salient. This is because civilian governments are often saddled with inherited debt from earlier military rulers. Pakistan’s military regimes have been less resource constrained because of greater external flows, allowing them to spend more on everything, but the rise in human development expenditures was less than proportional to the rise in available resources.