The Economy-Wide Impact of Harnessing Human Capital Development: A Dynamic Computable General Equilibrium Model Analysis

This study uses a Computable General Equilibrium (CGE) model to analyse the impact of skilled and semi-skilled labour supply shocks on the overall Ethiopian economy and sectoral outputs. The study considers three policy scenarios: a 10% increase, a 15% increase, and a 20% increase in skilled and semi-skilled labour supply compared to a business-as-usual (BAU) scenario. The results of the study show that all the three scenarios lead to higher economic growth, investment, and exports. The impact on sectoral outputs is also positive, with the industry and services sectors performing better than the agriculture sector. Specifically, the results of a 20% increase scenario show that real annual Gross Domestic Product (GDP) growth rate will be 0.79 percentage points higher than the business-as-usual scenario. It also shows that annual growth rates of investments and exports will be 2.69 and 2.31 percentage points higher, respectively, than the business-as-usual scenario counterparts. Furthermore, annual production of the agriculture sector grows marginally by 0.16 percentage points, higher than the business-as-usual scenario. Output in the industry sector also increases by 1.61 percentage points higher than the business-as-usual scenario, while outputs in the services sector improve significantly as well. Overall, the study finds that increasing the supply of skilled and semi-skilled labour has a positive impact on the economy. This is because skilled and semi-skilled workers are more productive and can contribute to higher economic growth. The findings of this study have important implications for policy makers. Governments could implement policies to increase the supply of skilled and semi-skilled labour, for example by investing in education and training programmes. This would boost economic growth and improve the living standards of the population.