Yeshineh, Alekaw Kebede; Woldeyes, Fi ew Bekele
A icle
The economy-wide impac o ha nessing human capi al
de elopmen and he case o E hiopia: A dynamic
compu able gene al equilib ium model analysis
Economies
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Sugges ed Ci a ion: Yeshineh, Alekaw Kebede; Woldeyes, Fi ew Bekele (2025) : The economy-wide
impac o ha nessing human capi al de elopmen and he case o E hiopia: A dynamic compu able
gene al equilib ium model analysis, Economies, ISSN 2227-7099, MDPI, Basel, Vol. 13, Iss. 5, pp.
1-23,
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Published: 16 May 2025
Ci a ion: Yeshineh, A. K., & Bekele
Woldeyes, F. (2025). The Economy-
Wide Impac o Ha nessing Human
Capi al De elopmen and he Case o
E hiopia: A Dynamic Compu able
Gene al Equilib ium Model Analysis.
Economies,13(5), 137. h ps://doi.o g/
10.3390/economies13050137
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A icle
The Economy-Wide Impac o Ha nessing Human Capi al
De elopmen and he Case o E hiopia: A Dynamic Compu able
Gene al Equilib ium Model Analysis
Alekaw Kebede Yeshineh * and Fi ew Bekele Woldeyes
Depa men o Mac oeconomy and Finance Policy Resea ch, Policy S udies Ins i u e (PSI), Addis Ababa 2479,
E hiopia; i ew[email p o ec ed]
*Co espondence: [email p o ec ed] o alekaw[email p o ec ed]
Abs ac : This s udy uses a compu able gene al equilib ium (CGE) model o analyze he
impac o skilled and semi-skilled labo supply shocks on he E hiopian economy and
sec o al ou pu s. The s udy examines h ee policy scena ios: a 10% inc ease, a 15% inc ease,
and a 20% inc ease in skilled and semi-skilled labo supply compa ed o a business-as-usual
(BAU) scena io. The indings show ha all h ee scena ios con ibu e o highe economic
g ow h, in es men , and expo s. The impac on sec o al ou pu s is also signi ican , wi h
he indus y and se ices sec o s pe o ming be e han he ag icul u e sec o . In he 20%
inc ease scena io, he eal annual g oss domes ic p oduc (GDP) g ow h a e is p ojec ed
o be 0.79 pe cen age poin s highe han he business-as-usual scena io. Addi ionally, he
annual g ow h a es o in es men s and expo s a e expec ed o be 2.69 and 2.31 pe cen age
poin s highe , espec i ely, compa ed o hei business-as-usual scena io coun e pa s.
The ag icul u e sec o expe iences a sligh inc ease o 0.16 pe cen age poin s in annual
p oduc ion compa ed o he business-as-usual scena io. Ou pu in he indus y sec o
also sees a ise o 1.61 pe cen age poin s highe han he business-as-usual scena io, while
ou pu s in he se ices sec o imp o e signi ican ly. O e all, he s udy highligh s he
posi i e impac o inc easing he supply o skilled and semi-skilled labo on he economy.
This is mainly due o he highe p oduc i i y o skilled and semi-skilled wo ke s, which
con ibu es o inc eased economic g ow h. The indings sugges ha go e nmen s should
implemen policies o enhance he supply o skilled and semi-skilled labo , such as in es ing
in educa ion and aining p og ams. These measu es would p omo e economic g ow h and
imp o e li ing s anda ds.
Keywo ds: skill-biased labo supply shock; compu able gene al equilib ium (CGE) model;
social accoun ing ma ix (SAM); lea ning-by-doing g ow h hypo hesis; skill misma ch;
business as usual (BAU) high g ow h (LS20); medium g ow h (LS15); low g ow h (LS10);
in es men in educa ion and aining p og ams
1. In oduc ion
1.1. Backg ound o he S udy
Since he 1980s, he c ucial ole o human capi al in d i ing economic g ow h and
educing po e y has been widely ecognized. O e he yea s, a ious heo ies ha ex-
plo e he impac o human capi al on economic g ow h and de elopmen ha e eme ged.
These heo ies unde sco e ha human capi al comp ising he skills, alen s, educa ion, and
abili ies o he wo k o ce plays a undamen al ole in he de elopmen p ocess. F om a
Economies 2025,13, 137 h ps://doi.o g/10.3390/economies13050137
Economies 2025,13, 137 2 o 23
mac oeconomic pe spec i e, he accumula ion o human capi al enhances labo p oduc i -
i y, os e s echnological inno a ion, inc eases e u ns on capi al, and p omo es sus ainable
g ow h. Human capi al de elopmen is c ucial o achie ing sus ainable de elopmen
goals, as i enhances p oduc i i y, inno a ion, and economic g ow h (see Kla in,2018;
Manioudis & Me am elio akis,2022)
. Consequen ly, i is a key elemen in he economy-
wide p oduc ion unc ion and con ibu es signi ican ly o po e y educ ion.
A he mic oeconomic le el, educa ion, which se es as a p oxy o human capi al,
enhances indi idual employabili y in he labo ma ke and inc eases ea ning po en ial.
Thus, a an indi idual le el, human capi al di ec ly in luences labo p oduc i i y and
ea nings, making i an in eg al componen o i m p oduc ion. In his con ex , human
capi al e e s o an indi idual’s abili y and e iciency in ans o ming aw ma e ials and
capi al in o goods and se ices. The e is a consensus ha hese skills can be de eloped
h ough he educa ional sys em.
In g ow h heo y, Solow-Swan’s g ow h model is conside ed he main model o g ow h
heo y. Al e na i e economic g ow h models a e o en compa ed o i . The Solow-Swan
g ow h model, also known as he neoclassical g ow h model, concludes ha long- e m
economic g ow h canno be achie ed by simply accumula ing capi al wi hou echnological
p og ess. This is because o he assump ion o diminishing e u ns, which e en ually limi s
g ow h (Sa ides & S engos,2009;Acemoglu e al.,2019;D. Rome ,2019). Technological
imp o emen s a e necessa y o o e come he e ec s o diminishing e u ns, as hey make
ac o s, such as labo , mo e p oduc i e. In he human capi al ex ended neoclassical g ow h
model p oposed by Mankiw e al. (1992), bo h physical and human capi al a e included in
he p oduc ion unc ion. I was ound ha echnological p og ess is s ill he main sou ce o
g ow h (Sa ides & S engos,2009).
An al e na i e g ow h model o coun e he impac o diminishing e u ns is o con-
side a p oduc ion unc ion ha does no adhe e o he p inciple o diminishing e u ns.
This model, known as he AK model, assumes ha he ou pu is a linea unc ion o capi al.
Consequen ly, economies cha ac e ized by his ype o p oduc ion unc ion can con in-
uously accumula e physical capi al wi hou expe iencing diminishing e u ns. The AK
model appea s o be a modi ied e sion o he Ha od-Doma g ow h model, which posi s
ha he a e o ou pu g ow h is de e mined by he a io o sa ings and capi al-ou pu
a ios. The p oposi ion o his g ow h model is ha , gi en he low sa ings a e and high
capi al-ou pu a io esul ing om capi al sca ci y in many de eloping coun ies, i is
c ucial o accele a e g ow h by inc easing he sa ings a e. This will enable he abso p ion
o he g owing labo o ce and educe po e y (A a a ,2009).
Howe e , in he endogenous g ow h model, he p ocess o echnical change o knowl-
edge accumula ion is no cons an o p ede e mined; i depends on he speci ic ea u es o
he model. Knowledge accumula ion can be unde s ood as he adop ion o new p oduc ion
echniques, he implemen a ion o new managemen and o ganiza ional s uc u es, and
he accumula ion o scien i ic knowledge. Such knowledge accumula ion can enhance he
le el o human capi al in he economy, which in u n has a posi i e e ec on economy’s
p oduc i e capaci y (Sa ides & S engos,2009). The e o e, he accumula ion o human cap-
i al is use ul in o e coming he limi a ions o diminishing e u ns and can lead o economic
g ow h, e en in he absence o echnological p og ess, a leas in he sho e m. I is widely
acknowledged ha sus ainable long- e m g ow h can be achie ed h ough con inuous
imp o emen o he p oduc ion p ocess h ough he adop ion o new echnologies and
me hods. In his con ex , P. M. Rome (1990) a gues ha he de elopmen o human capi al
leads o highe economic g ow h, as educa ed wo ke s con ibu e o inno a ion h ough
esea ch and de elopmen ac i i ies (P. M. Rome ,1990). Thus, human capi al plays a
Economies 2025,13, 137 3 o 23
c ucial ole in inc easing p oduc i i y a es by acili a ing he as e a e o inno a ion in
domes ic p oduc s and se ices, as well as by imi a ing echnologies de eloped elsewhe e.
1.2. Human Capi al De elopmen in E hiopia
E hiopia, home o a popula ion o o e 120 million in 2021, is he second mos populous
coun y in A ica. The coun y has a you h ul popula ion, wi h 40% o E hiopians unde
he age o 15. Howe e , he ag icul u al sec o , which is acing a decline in a ailable
land pe a me , may s uggle o p o ide employmen oppo uni ies o his g owing
you h bulge. Schmid and Woldeyes (2019) ha e shed ligh on his issue, indica ing ha
wi hou p oac i e managemen , hese young indi iduals may ace unemploymen , leading
o un apped po en ial and discon en . Howe e , wi h he igh policies in place, E hiopia’s
you h ul popula ion could become an asse in d i ing he coun y’s de elopmen agenda,
which is aimed a po e y educ ion.
F om an indi idual s andpoin , esea ch sugges s ha indi iduals wi h highe le -
els o educa ion end o ha e be e employmen p ospec s, highe ea nings, and g ea e
p oduc i i y compa ed o hose wi h lowe le els o educa ion. These indings ha e p o-
ided a s ong a ionale o go e nmen s and households o in es a signi ican p opo ion
o hei esou ces in educa ion. The hope is ha hese in es men s will yield long- e m
bene i s o bo h he economy and households. Educa ion is seen as an in es men ha
equips indi iduals wi h he knowledge and skills necessa y o imp o ed employmen
oppo uni ies and enhanced p oduc i e capaci ies.
Recognizing ha educa ion plays a c i ical ole in p epa ing he you h o he ansi ion
om an ag a ian o a mode n socie y, he Go e nmen o E hiopia has alloca ed subs an ial
unds o he educa ion sec o in ecen yea s. As a esul , he numbe o o mal educa ion
cen e s has inc eased, leading o a signi ican ise in you h en ollmen . Since 2015/16, school
en ollmen has exceeded 20 million and 2.4 million s uden s in p ima y and seconda y
schools, espec i ely as shown in Table 1. The numbe o p ima y and seconda y schools
has eached 37,742 and 3687, espec i ely, in he 2019/20 academic yea . The s uden
popula ion in p ima y and seconda y schools has su passed 20.4 million and 3.4 million,
espec i ely, in 2019. Addi ionally, he numbe o echnical and oca ional educa ion and
aining (TVET) cen e s has also seen g ow h.
Table 1. Fo mal educa ion de elopmen s.
Pa icula s 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
P ima y schools 33,373 34,867 35,887 36,437 37,039 37,742 35,980
Seconda y schools 2830 3156 3380 3589 3739 3687 3481
No. o uni e si ies 33 37 37 49 50 55 56
School en olmen
P ima y (million) 18.7 20 20.8 20.7 20.04 20.4 18.4
Seconda y (million) 2.11 2.42 2.56 2.67 2.82 3.47 3.54
TVET ( housands) 265.75 304.14 302.08 292.38 317.73 386.81 283.97
Sou ce: (Na ional Bank o E hiopia,2021).
Despi e he commendable inc ease in he numbe o s uden s, he e a e conce ns
ega ding he quali y o educa ion, as a la ge po ion o p ima y school s uden s do no
p og ess o seconda y educa ion. Fu he mo e, he e exis egional dispa i ies in e ms o
access o educa ion. The ac ha s uden s ail o comple e seconda y educa ion dec eases
hei likelihood o bene i ing om employmen oppo uni ies.
Economies 2025,13, 137 4 o 23
E hiopia has also p io i ized echnical and oca ional educa ion and aining (TVET)
as pa o i s educa ion s a egy. The TVET cen e s aim o de elop he skills o he you h
and help hem en e he labo ma ke . As o 2015/16, he e we e o e 300,000 s uden s
in TVET ins i u ions. Howe e , K ishnan and Shao shadez (2013) a gue ha he TVET
p og am in E hiopia has been supply-d i en, despi e he s a egy emphasizing lexibili y
in accommoda ing he demand o TVET s uden s (K ishnan & Shao shadez,2013).
In es ing in educa ion is a c ucial policy ool a ailable o policymake s. The Incheon
Decla a ion o implemen ing Sus ainable De elopmen Goal 4 ecommends alloca ing 4%
o 6% o he GDP o 15% o 20% o o al go e nmen expendi u e o educa ion (UNESCO,
2015). In E hiopia, as illus a ed in Figu e 1, he sha e o educa ion expendi u e as a
p opo ion o o al go e nmen expendi u e has inc eased, eaching 24% in 2018 compa ed
o 14% in 1994. In ac , E hiopia has su passed he in e na ionally se a ge o 20% o al
expendi u e on educa ion.
Figu e 1. Educa ion expendi u e (% o al go e nmen expendi u e). Sou ce: Minis y o Finance
(2021–2022).
As illus a ed in Figu e 2, E hiopia has consis en ly alloca ed mo e han 4% o i s GDP
o educa ion since 2005. This indica es a subs an ial commi men o ad ancing educa ion
wi hin he coun y. Consequen ly, he e has been no able p og ess in expanding access o
educa ion. Ne e heless, he e is anecdo al e idence sugges ing ha he an icipa ed impac
on de elopmen has no been ully ealized. Acco ding o P i che (2001), his lacklus e
pe o mance in a ious de eloping na ions can be a ibu ed o ac o s such as un a o able
go e nance condi ions, diminishing ma ginal e u ns, and inadequa e educa ion quali y
(P i che ,2001).
As o 2018, he o al educa ion expendi u e amoun ed o USD 3.4 billion (o ETB
92.6 billion), showing signi ican g ow h om jus USD 1 billion a decade ago. O e he
pas ew decades, educa ion expendi u e has inc eased bo h in e ms o sha e and absolu e
le els, as well as pe capi a.
Despi e he subs an ial public in es men in educa ion, he sha e o na ional in-
come/g oss na ional income (34%) in 2016 s ill wen o labo e s wi hou o mal educa ion,
al hough he e was a sligh dec ease compa ed o 2011. P og ess in his a ea has been
slowe han an icipa ed, conside ing he amoun in es ed in he educa ion sec o .
Economies 2025,13, 137 5 o 23
Figu e 2. Educa ion expendi u e (% GDP). Sou ce: Minis y o Finance (2021–2022).
The educa ional s a egy has been ca e ully designed, wi h special a en ion gi en o
echnical and oca ional educa ion and aining (TVET) as well as science and echnology
educa ion. Fu he mo e, i is expec ed ha he human capi al de elopmen s a egy will
p io i ize he linkage be ween uni e si ies (and TVET ins i u ions) and indus ies. I is
widely acknowledged ha in-se ice aining plays a c ucial ole in enhancing human
capi al de elopmen , as wo ke s a e mo e likely o specialize and acqui e skills wi h
mode a e le els o aining. Tables 2and 3illus a e an in e es ing end: a shi in he
u iliza ion o human capi al wi hin he economy. The p opo ion o unskilled labo (Lab—
No Educa ion) has declined om 36.47% in 2011 o 34.04% in 2015/16, while he sha e
o skilled labo (Lab—Te ia y Educa ion) has inc eased om 5.70% in 2011 o 8.46% in
2015/16. This is accompanied by a ise in he con ibu ion o non-ag icul u al capi al, which
has g own om 26.45% in 2011 o 36.76% in 2015/16. These igu es indica e a s uc u al
ans o ma ion, sugges ing ha he economy is shi ing i s ocus owa ds sec o s wi h
highe p oduc i i y, such as indus y and se ices, and away om ag icul u e.
Gi en he go e nmen ’s subs an ial in es men in he educa ion sec o , which acili-
a es access o o mal educa ion and in-se ice aining o a la ge p opo ion o he you h
popula ion, i is c ucial o e alua e he con ibu ion o skilled and semi-skilled wo ke s o
E hiopia’s economic g ow h.
Table 2. The sha e o ac o s in alue added in 2011.
Fac o s o P oduc ion Sha e o Income
Lab—No Educa ion 36.47
Lab—P ima y Educa ion 7.09
Lab—Seconda y Educa ion 7.37
Lab—Te ia y Educa ion 5.70
Capi al Land Ru al 11.88
Capi al Li es ock Ru al 4.07
Non-Ag icul u al Capi al 26.45
Sou ce: IFPRI SAM o 2011 (IFPRI,2011).
Economies 2025,13, 137 6 o 23
Table 3. The sha e o ac o s in alue added in 2016.
Fac o s o P oduc ion Sha e o Income
Lab—No Educa ion 34.05
Lab—P ima y Educa ion 7.37
Lab—Seconda y Educa ion 3.29
Lab—Te ia y Educa ion 8.46
Capi al Land Ru al 7.32
Capi al Li es ock Ru al 2.75
Non-Ag icul u al Capi al 36.76
Sou ce: PSI-EU SAM (PSI-EU,2016).
1.3. Objec i e
The objec i e o his s udy is o analyze he economy-wide impac o skilled biased
echnological p og ess on economic g ow h and income dis ibu ion.
The speci ic objec i es a e he ollowing:
(i) Analyze he e ec o human capi al de elopmen on economic g ow h and on sec o al
ou pu g ow h.
(ii) Analyze he e ec s o skilled and semi-skilled labo supply shock on economic g ow h
and o he mac oeconomic pe o mances.
(iii)
Analyze he con ibu ion o skilled and semi-skilled labo supply shock on sec o al
g ow h and s uc u al ans o ma ion.
(i )
In es iga e he e ec o skilled biased labo supply shocks on ac o income, go e n-
men e enue and income changes by ypes o households.
This s udy is o ganized as ollows. Sec ion 2p o ides a b ie e iew o he li e a u e
on he ela ionship be ween human capi al and economic g ow h. Sec ion 3desc ibes
he da abase and me hodology used in he s udy. Sec ion 4p esen s he empi ical e-
sul s and discusses he main indings. Finally, Sec ion 5concludes he s udy and o e s
ecommenda ions based on he indings.
2. Li e a u e Re iew
The heo y o economic g ow h has unde gone signi ican de elopmen h oughou
a ious his o ical pe iods, esul ing in he eme gence o di e en pe spec i es. Mode n
g ow h heo y, which aces i s o igins back o he in luen ial wo k o F ank Ramsey in 1928,
posi s ha p io i izing sa ings o e cu en consump ion yields highe le els o u u e
consump ion and ou pu . Howe e , in he a e ma h o Wo ld Wa II, g ow h economis s
began o mula ing models based on he economies o de eloped na ions, placing emphasis
on ac o s like capi al accumula ion, echnological ad ancemen s, and human capi al as
ca alys s o economic g ow h.
The Ha od-Doma model, which is widely ega ded as he i s g ow h model in
mode n g ow h heo ies, eme ged in he a e ma h o he G ea Dep ession. I p o ided a
his o ical pe spec i e and analyzed economic g ow h. The model syn hesized he indings
o s udies conduc ed by Roy Ha od and E sey Doma and explained an economy’s g ow h
a e in e ms o sa ings and capi al (Ha od,1939;Doma ,1946). Essen ially, he model is a
Keynesian model o economic g ow h ha links an economy’s g ow h a e o he le el o
sa ings and capi al. Acco ding o he Ha od-Doma g ow h model, he maximum a e
o capi al s ock g ow h is de e mined by he a io o he sa ings a e o he capi al ou pu
a io, assuming a his o ically de e mined and cons an sa ings a e and capi al ou pu a io
(A a a ,2009). I we assume ha he a e o capi al s ock g ow h is he same as he a e o
Economies 2025,13, 137 7 o 23
economic g ow h, and ha he capi al-ou pu a io is cons an , hen he economic g ow h
a e becomes an inc easing unc ion o he sa ings a e.
The implica ion o he Ha od-Doma model is ha , due o a low sa ings a io bu a
high capi al ou pu a io in de eloping coun ies, he e will be a low g ow h a p io i ha
canno abso b he apidly g owing popula ion. To add ess his, coun ies mus accele a e
economic g ow h beyond he adi ional limi s o he sa ings a e and capi al ou pu
a io by inc easing he sa ings a e o a le el ha gene a es su icien a es o economic
g ow h o abso b he new labo o ce. The model assumes a di ec ela ionship be ween
ou pu and capi al s ock, emphasizing he impo ance o physical capi al accumula ion
(Sa ides & S engos,2009). Howe e , he Ha od-Doma model and o he ea lie models
neglec ed he ole played by echnological ad ance and human capi al in economic g ow h
in hei analyses.
On he o he hand, he Solow-Swan neoclassical g ow h model is widely ega ded as
a ounda ional g ow h heo y agains which al e na i e models a e e ined and e e enced.
The model demons a es ha a he s eady s a e, he e is ze o g ow h. An inc ease in sa ings
leads o empo a y g ow h, bu wi hou sus ained inc eases, g ow h canno be sus ained
inde ini ely. The Solow-Swan model also p o ides insigh s in o how economies can achie e
an al e na i e s eady s a e wi h posi i e economic g ow h (Sa ides & S engos,2009;
A a a ,2009). The model is based on a p oduc ion unc ion ha inco po a es diminishing
e u ns in he ac o s o p oduc ion (capi al and labo ) and cons an e u ns o scale. I also
assumes he Inada condi ions
1
and he essen iali y
2
o capi al, as well as a cons an sa ings
a e whe e households sa e a ixed p opo ion o hei income (Sa ides & S engos,2009;
Acemoglu,2009;Robe & Xa ie ,2004;Philippe & Pe e ,2009).The Solow-Swan model
demons a es how economic policy can boos he a e o economic g ow h by inc easing
he sa ings a e. Howe e , his inc ease in g ow h is no sus ainable in he long un, as i
e en ually leads o ze o economic g ow h and s agna ion. Consequen ly, coun ies wi h
highe sa ings a es will ha e highe pe capi a income in he s eady s a e han poo e
coun ies, bu hey will expe ience ze o economic g ow h in he long e m. In o de o
long- e m g ow h o occu , he e needs o be a way o o e come diminishing e u ns and
allow o he accumula ion o p oduc i e inpu s o e ime, such as h ough he in oduc ion
o echnological p og ess.
The key akeaway om he basic Solow-Swan model is ha capi al accumula ion alone,
wi hou echnological p og ess, canno d i e long- e m economic g ow h. As diminishing
e u ns se in, he economy will each a poin o s eady s a e and cease o g ow. This s eady
s a e p ope y emains unchanged e en wi h he ex ension o he Solow-Swan model by
Mankiw e al. (1992), which inco po a es an agg ega e ou pu unc ion in ol ing physical
capi al, human capi al, and labo measu ed in e iciency uni s. Ano he ex ension o he
Solow-Swan model, known as he Cass-Koopmans-Ramsey model (CKR model), elaxes
he assump ion o cons an sa ings and inco po a es consume maximizing beha io , bu
i does no lead o quali a i ely di e en equilib ium ou comes om he basic Solow-
Swan model.
Acco ding o endogenous g ow h heo y, he accumula ion o human capi al plays a
c ucial ole in economic g ow h. Va ious c oss-coun y s udies sugges ha educa ional
a ainmen can signi ican ly con ibu e o o e all ou pu p oduc ion in an economy. The
p ocess o echnological change and knowledge accumula ion akes a ious o ms, anging
om basic esea ch o p ac ical skills used a he i m le el. Implemen a ion o new
p oduc ion echniques, managemen p ac ices, and o ganiza ional s uc u es a e all pa
o his knowledge accumula ion p ocess. Each o m o knowledge accumula ion has a
di e en impac on he p oduc i e capaci y o he economy.
Economies 2025,13, 137 8 o 23
The e o e, he endogenous g ow h model in oduces he concep o human capi al,
which e e s o he skills and knowledge ha enhance wo ke s’ p oduc i i y. Recen s udies,
including Aghion e al. (2021), demons a e ha skilled wo ke s acili a e echnological
di usion, pa icula ly wi hin high- ech indus ies. This inding aligns wi h he conclusions
o Baha e al. (2020) om he Wo ld Bank, which indica e ha he mig a ion o skilled
labo s imula es inno a ion in des ina ion coun ies and con ibu es o economic g ow h.
The implica ion is ha unlike physical capi al, which exhibi s cons an e u ns, human
capi al yields inc easing a es o e u n. As a esul , economies ne e each a s eady s a e,
and g ow h does no slow down as capi al accumula es.
I is c ucial o acknowledge ha mode n g ow h heo y has aced c i icism om a -
ious economis s. They con end ha he heo y o e simpli ies he complexi ies in ol ed
in in luencing economic g ow h. Addi ionally, some a gue ha he heo y is mo e sui ed
o de eloped coun ies a he han de eloping ones. Ne e heless, no wi hs anding hese
limi a ions, mode n g ow h heo y e ains i s signi icance as a amewo k o comp ehend-
ing he de e minan s o economic g ow h. No ably, i has been employed o shape policies
in nume ous coun ies ac oss he globe.
3. Me hods and Da abase
3.1. In oduc ion
E hiopia possesses a signi ican human capi al wi h a p ojec ed popula ion o o e
120 million by 2021. The p esence o a la ge young popula ion in a coun y enhances he
po en ial o bols e ing human capi al and suppo ing he economy. Acknowledging he
impo ance o human de elopmen , he Go e nmen o E hiopia has alloca ed a subs an ial
budge o he educa ion sec o .
In a coun y like E hiopia, whe e conside able esou ces a e in es ed in human capi al
de elopmen , labo assumes a c ucial ole as a means o li elihood o many indi iduals.
Consequen ly, labo u iliza ion and labo - ela ed policies exe a - eaching implica ions on
he economy and li elihoods. The e o e, in o de o assess he impac o al e na i e labo
u iliza ion and labo - ela ed policies, i is essen ial o employ a comp ehensi e amewo k
ha conside s he economy as a whole. This en ails analyzing he con ibu ion o human
capi al de elopmen o economic g ow h and o he associa ed e ec s. By u ilizing a
Compu able Gene al Equilib ium (CGE) model, i becomes possible o delinea e he en i e
economy and examine he in luence o policy changes on bo h he o e all economy and i s
sec o al b eakdown. Fu he mo e, his amewo k allows us o e alua e he dis ibu ional
impac s o policy changes on households and go e nmen income, a c ucial aspec o
inancing de elopmen p ojec s and o he public se ices.
This s udy employs a Compu able Gene al Equilib ium (CGE) model analysis o
gain deepe insigh s in o he con ibu ion o educa ion o human capi al de elopmen o
economic g ow h and a ious sec o al e ec s in E hiopia.
3.2. The CGE Model Desc ip ion and Scena ios
In his s udy, we u ilize he ecu si e dynamic e sion o he IFPRI CGE model
(Thu low,2008;Do osh e al.,2011).
3
The model e ec i ely simula es he ope a ion o
an economy and acks comp ehensi e backwa d and o wa d linkages be ween a ious
economic ac o s. The model is designed as a sys em o simul aneous linea and non-linea
equa ions, in line wi h he beha io o economic agen s. Addi ionally, i inco po a es he
economic en i onmen in which hese agen s unc ion. This en i onmen is commonly
cha ac e ized by ma ke equilib ium condi ions, mac oeconomic balances, and dynamic
upda ing equa ions (Thu low,2008).
Economies 2025,13, 137 15 o 23
4.1.2. Impac on Sec o al Ou pu
The majo e ec s o di e en skilled and semi-skilled labo supply shocks on he
esul ing sec o al composi ions a e ou lined in Table 7.
Table 7. Simula ion esul s o sec o al ou pu g ow h.
Sec o BAU LS10 LS15 LS20
% Change om BAU
LS10 LS15 LS20
Ag icul u e 5.42 5.51 5.54 5.58 0.09 0.13 0.16
Indus y 4.94 6.47 6.51 6.55 1.53 1.57 1.61
Se ices 4.54 5.47 5.52 5.58 0.93 0.99 1.04
To al VAD FC 5.02 5.76 5.81 5.86 0.74 0.79 0.84
Sou ce: Model simula ion esul s based on PSI-EU-SAM.
Fi s , he ag icul u e sec o expe iences he lowes bene i s ac oss all scena ios. In he
high g ow h scena io (LS20), he annual p oduc ion o he ag icul u e sec o only inc eases
ma ginally by 0.16 pe cen age poin s compa ed o he BAU scena io. Simila ly, in he
medium g ow h scena io (LS15), he g ow h in he ag icul u e sec o ou pu is modes ,
wi h only a 0.13 pe cen age poin inc ease compa ed o he BAU scena io. This inc ease is
s ill lowe han he impac on GDP. In o he wo ds, he impac on ag icul u e, in p opo ion,
is lowe han he impac on GDP. I is ound in he li e a u e ha he impac o e ia y
educa ion on ag icul u al p oduc i i y can be insigni ican and e en nega i e, pa icula ly
(Reime s & Klasen,2013). Ou analysis shows ha ag icul u e bene i s less om skilled and
semi-skilled labou compa ed o indus y and se ice sec o s, which a e mo e knowledge-
in ensi e. In addi ion o he abo e men ioned indings in he li e a u e, his could be due
o s uc u al challenges ha limi access o mode n echnology which equi es highe le el
o educa ion, such as e y small land size which a e age land holding less han 1 hec o
pe holde .
In he high g ow h scena io, he impac on GDP is on a e age 0.84 pe cen age poin s
highe pe annum compa ed o he BAU scena io. Simila ly, in he medium g ow h scena io,
he impac on GDP is 0.74 pe cen age poin s highe compa ed o he BAU scena io. In he
low g ow h scena io (LS10), he impac on ag icul u al ou pu s is s ill minimal bu posi i e,
and much smalle han he impac on GDP. The eason o he low impac on ag icul u e in
he simula ion esul s is ha he ag icul u e sec o elies mo e on unskilled labo , whose
supply is educed as mo e wo ke s mig a e o he indus y and se ices sec o s ollowing
imp o ed human capi al de elopmen .
Second, al hough he con ibu ion o GDP o he indus y sec o is s ill small, i s ole
has been imp o ing o e ime. Unde he high g ow h scena io (PS20), he indus y’s con i-
bu ion o GDP is 1.61 pe cen age poin s highe han he BAU scena io. Simila ly, unde he
medium g ow h scena io (LS15), he indus y’s con ibu ion inc eases by 1.57 pe cen age
poin s compa ed o he BAU scena io. The impac on he se ices sec o is also ela i ely
be e compa ed o ag icul u e in all scena ios. In he high g ow h scena io (LS20), he
se ices sec o g ows by app oxima ely 1.04 pe cen age poin s highe han he g ow h
in he BAU scena io. In he medium g ow h scena io (LS15), he se ices sec o g ows
by nea ly 1.0 pe cen age poin highe han he g ow h in he base case (BAU) scena io.
Likewise, in he low g ow h scena io (LS10), he se ices sec o g ows by a ma gin o 0.93%
compa ed o he g ow h unde he BAU scena io, which is s ill highe han he impac on
GDP. The highe impac on he indus y sec o is pa ly due o he mode a e skill-in ensi e
na u e o manu ac u ing ac i i ies compa ed o ag icul u al ac i i ies. The same is ue o
he se ices sec o .
Economies 2025,13, 137 16 o 23
4.1.3. Fac o Income E ec
Table 8p esen s he impac o di e en scena ios on employmen income in he coun y.
The scena ios demons a e a dec ease in income sha e o unskilled and semi-skilled labo
by 2026, a ibu ed o a decline in he supply o unskilled labo and an inc ease in he supply
o skilled and semi-skilled labo . The annual compounded g ow h a es also indica e a
dec ease in wage income o hese labo ca ego ies. Howe e , he o al income o skilled
labo inc eases, despi e a dec ease in wage a es, due o a highe p opo ion o skilled labo
being employed in he economy compa ed o he BAU scena io. The g ea es inc ease
in income o skilled labo is obse ed in he low g ow h (LS10) scena io, ollowed by
he medium g ow h (LS15) scena io, possibly due o a mode a e decline in wage a es in
hese scena ios.
Table 8. Simula ion esul s o ac o income.
Annual Compounded A e age % Changes om INITIAL
Labou Type BASE LS10 LS15 LS20
lab-n 4.53 4.26 4.31 4.36
lab-p 5.47 4.29 4.30 4.30
lab-s 5.47 4.98 4.97 4.97
lab- 1.35 3.91 3.83 3.75
Capi al Land Ru al 6.17 6.8 6.86 6.92
Capi al Li s Ru al 5.61 5.72 5.78 5.83
Non-Agg-capi al 4.86 2.88 2.94 3.00
Sou ce: Model simula ion esul s based on PSI-EU-SAM.
Income om u al land and li es ock shows a sligh inc ease in all scena ios, wi h
he highes inc ease in en al income obse ed in he high g ow h (LS20) scena io. This
sugges s ha he p oduc i i y o land and li es ock imp o es wi h he inc ease in skilled
and semi-skilled labo supply. On he o he hand, income om non-ag icul u al capi al is
lowe in all scena ios compa ed o he BAU scena io. This may be a ibu ed o he low
ma ginal p oduc i i y o capi al esul ing om he sudden inc ease in supply o skilled
and semi-skilled labo , wi hou a co esponding inc ease in capi al.
4.1.4. Impac on he Income o Go e nmen and Poo Households
Figu e 5illus a es ha he change in go e nmen e enue, compa ed o he business
as usual (BAU) scena io, exhibi s an upwa d end. Speci ically, unde he low g ow h
(LS10) scena io, go e nmen e enue su passes i s BAU equi alen by 0.29%. While he
ag icul u al sec o may no be a p ima y sou ce o di ec ax e enue o he go e nmen , a
su ge in skilled and semi-skilled labo p esen s a signi ican oppo uni y. This is because
hese wo ke s a e ypically employed in indus ies and se ices, which a e gene ally easie
and mo e e icien o ax han ag icul u e. Consequen ly, a shi owa ds a labo supply
biased owa ds skilled indi iduals can esul in a subs an ial inc ease in go e nmen ax
e enue. In ac , in he 2015/16 pe iod, ax e enue om ag icul u al income and u al
land use ees accoun ed o only 0.04% o GDP (Mengis u e al.,2018). Consequen ly, i is
no ewo hy ha go e nmen e enue expe iences a ma ginal inc ease by augmen ing he
ou pu s o non-ag icul u al sec o s.
Economies 2025,13, 137 17 o 23
Figu e 5. Go e nmen income (% change). Sou ce: Model simula ion esul s based on PSI-EU-SAM.
A ho ough analysis o he mac o simula ion esul s e eals a signi ican su ge in
impo s and a decline in household consump ion. Gi en ha impo s con ibu e signi -
ican ly o ax e enue, he inc ease in impo s has gene a ed mo e ax e enue han he
po en ial loss o e enue due o he dec ease in domes ic consump ion. In simple e ms,
he iscal impac o he shock is e lec ed in he educ ion o domes ic ax e enues esul ing
om lowe household consump ion and he inc ease in in e na ional ade axes om
highe impo s. This holds ue ac oss all scena ios, wi h he high g ow h (LS20) scena io
gene a ing mo e e enue compa ed o he o he s. This is because income in he BAU
scena io is de i ed om sel -employmen , which is no subjec o axa ion. Howe e , in he
high g ow h (LS20) and medium g ow h (LS15) scena ios, inc eased income a ises om
o mal sec o employmen , which is axable due o p oduc i i y imp o emen s.
Al hough i is in e es ing o unde s and he ull ex en o income dis ibu ion esul ing
om changes in labo u iliza ion, i is pa icula ly impo an o examine he impac on
indi iduals li ing in po e y and he middle class (excluding hose in he op 20%), as any
change in hei income can ha e signi ican consequences.
Table 9p esen s he income dis ibu ion among di e en household g oups in all
scena ios. In compa ison o he business as usual (BAU) scena io, income dec eases o
all ypes o households. Howe e , in ela ion o he ini ial income le el, u al households
expe ience a sligh inc ease in income compa ed o u ban households.
Table 9. Simula ion esul s o income dis ibu ion by po e y household g oups.
Annual Compound % Changes om INITIAL
Household Type INITIAL BASE LS10 LS15 LS20
Ru al poo 164.83 4.81 4.47 4.52 4.57
Ru al middle class 529.38 4.67 4.25 4.30 4.34
Ru al ich 162.03 4.44 4.04 4.07 4.10
U ban poo 19.96 4.00 3.36 3.40 3.43
U ban middle income 179.50 4.28 3.50 3.54 3.57
U ban ich 303.14 4.00 3.64 3.65 3.66
Sou ce: Model simula ion esul s based on PSI-EU-SAM.
To unde s and hese pa e ns, i is impo an o no e ha he expansion o skilled and
semi-skilled labo has a minimal impac on he income o hose li ing in po e y, as hey
al eady lack skills. When conside ing he o e all impac , he decline in income is signi ican
in he low g ow h (LS10) scena io. In summa y, i is wo h no ing ha in all scena ios, he
inc ease in skilled and semi-skilled labo supply shock has a nega i e impac compa ed o
he business as usual (BAU) scena io.
Economies 2025,13, 137 18 o 23
5. Conclusions and Recommenda ions
We conduc ed a comp ehensi e analysis o he e ec o human capi al on he economy
using he Compu able Gene al Equilib ium (CGE) model app oach based on he Social
Accoun ing Ma ix (SAM) o PSI o in es iga e he impac o skill-biased labo supply
shocks on he E hiopian economy. We de eloped h ee plausible scena ios o CGE analysis:
high g ow h (LS20) scena io, medium g ow h (LS15) scena io, and low g ow h (LS10)
scena io. These scena ios we e compa ed o a “Business As Usual” (BAU) scena io o assess
he po en ial e ec s.
In he high g ow h (LS20) scena io, which models a 20% inc ease in skilled and semi-
skilled labo supply, we obse ed subs an ial imp o emen s in GDP, non-ag icul u al
sec o ou pu , expo s, ixed in es men s, impo s, and ne indi ec ax. Simila ly, he
medium g ow h (LS15) scena io, assuming a 15% inc ease in skilled and semi-skilled labo
supply, demons a ed posi i e impac s on g ow h indica o s. Finally, he low g ow h (LS10)
scena io, wi h a 10% inc ease in skilled and semi-skilled labo supply, allowed us o assess
he economy-wide and sec o al ou pu e ec s.
Ou indings e ealed ou no ewo hy esul s. Fi s ly, bo h GDP and non-ag icul u al
sec o ou pu expe ienced signi ican g ow h in he high g ow h (LS20) and medium
g ow h (LS15) scena ios, as well as in he low g ow h (LS10) scena io al hough he impac
is minimal. Expo pe o mance, ixed in es men s, impo s, and ne indi ec ax also
showed p omising imp o emen s unde hese scena ios. Secondly, g ow h in hese scena io
su passed ha o he BAU scena io, indica ing ha skill-biased labo expansion has he
po en ial o suppo u he g ow h. This implies ha he e is oom o g ow h be o e
eaching a limi . Expo s, g oss ixed in es men s, impo s, go e nmen e enue, and ax
e enues subs an ially inc eased in hese scena ios. Thi dly, he impac on poo households
in he LS20 scena io was compa able o ha o he BAU scena io, implying ha his scena io
yields minimal nega i e ou comes o hese ulne able g oups. Las ly, we obse ed ha
he esponse o skill-biased labo supply shocks is no immedia e. Ins ead, no able e ec s
ma e ialize se e al yea s a e he implemen a ion o he shock, which can be a ibu ed o
he ime equi ed o in e nalize he skills and knowledge o human capi al. This inding
aligns wi h he lea ning-by-doing g ow h hypo hesis.
In conclusion, ou s udy unde sco es he impo ance o human capi al in d i ing
economic g ow h. We highligh he po en ial bene i s o skill-biased labo supply shocks
and s ess he ime lag in expe iencing hei e ec s. These indings con ibu e o a deepe
unde s anding o he ole o human capi al in economic de elopmen . The s udy concludes
ha implemen ing app op ia e policy measu es is c ucial o s imula e he economy and
op imize he alloca ion o a ailable esou ces o sus ainable economic g ow h. Failu e o
ake immedia e ac ion will esul in subop imal ou comes wi h las ing impac s. Policies
aimed a sus aining g ow h and e icien ly u ilizing abundan esou ces, such as labo , in
de eloping coun ies should be e alua ed no only o hei immedia e g ow h impac bu
also o u u e de elopmen . I is o u mos impo ance o align skills aining and labo
ma ke demands o ensu e ha an excess supply o labo yields posi i e e ec s on he
economy. As such, employmen and educa ion policies should be synch onized wi h he
economy’s needs, and hei e ec i eness should be con inuously moni o ed.
Based on he s udy’s indings, we ecommend ha go e nmen s:
•
In es in educa ion and aining o enhance he supply o skilled and semi-skilled
labo , hus acili a ing economic di e si ica ion beyond ag icul u e.
•
Design educa ional p og ams ha equip g adua es wi h skills ha a e cu en ly in de-
mand in he labo ma ke . This will imp o e employabili y and educe skill misma ches.
•
Regula ly moni o educa ion and employmen policies o e alua e hei e ec i eness
in aligning wi h he economy’s equi emen s, making adjus men s as necessa y.
Economies 2025,13, 137 19 o 23
•
Expand inancial inclusion o en ep eneu s and small businesses, enabling hei
g ow h and job c ea ion, pa icula ly in non-ag icul u al sec o s whe e go e nmen s
can collec inc eased ax e enues.
Au ho Con ibu ions: This esea ch was ini ia ed by F.B.W., wi h he concep no e u he de eloped
in collabo a ion wi h esea che s om PSI. The heo e ical amewo ks and seconda y da a analysis
we e conduc ed by A.K.Y. In ela ion o he CGE model simula ion, bo h F.B.W. and A.K.Y. pe o med
he simula ion analyses and in e p e ed he esul s. Bo h au ho s con ibu ed o and discussed he
li e a u e e iew. All au ho s ha e ead and ag eed o he published e sion o he manusc ip .
Funding: This s udy was conduc ed wi h unding om A ican Economic Resea ch Conso ium
(AERC), unde he AERC collabo a i e p ojec on “Human Capi al De elopmen in A ica”, G an
No. RC21639.
Ins i u ional Re iew Boa d S a emen : No applicable.
In o med Consen S a emen : No applicable.
Da a A ailabili y S a emen : The main da ase used (PSI_EU SAM) is publicly a ailable a PSI
websi es and JRC Publica ions Reposi o y (h ps://publica ions.j c.ec.eu opa.eu/ eposi o y/handle/
JRC118413, accessed on 6 Feb ua y 2024) and annual epo s o Minis y o Finance (MoF) and
Na ional Bank o E hiopia (NBE). I is also u nished upon eques .
Con lic s o In e es : The au ho s decla e no con lic s o in e es .
Appendix A
The CGE Model Speci ica ion
The ollowing ables p o ide a comple e lis ing o he model’s a iables, pa ame e s
and equa ions. Al hough hese ables desc ibe he Sou h A ican model, i is la gely based
on he equa ion lis ing ound in he S anda d Compu able gene al Equilib ium (CGE)
Model o Lo g en e al. (2002) In e na ional Food Policy and Resea ch Ins i u e (Lo g en
e al.,2002). Howe e , he equa ion numbe s do no co espond o hose ound in Lo g en
e al. (2002). Ra he , he o de ing o equa ions ollows he desc ip ion o he model ound
in Sec ion 2o his pape .
Table A1. Model se s, pa ame e s, and a iables.
Symbol Se s Explana ion Symbol Explana ion
a∈AAc i i ies c∈CMR(⊂C)Regionally impo ed commodi ies
a∈ALEO(⊂A)Ac i i ies wi h a Leon ie unc ion a he
op o he echnology nes c∈CMNR(⊂C)Non- egionally impo ed
commodi ies
c∈CCommodi ies c∈CT(⊂C)T ansac ion se ice commodi ies
c∈CD(⊂C)Commodi ies wi h domes ic sales o
domes ic ou pu c∈CX(⊂C)Commodi ies wi h domes ic
p oduc ion
c∈CDN(⊂C)Commodi ies no in CD ∈FFac o s
c∈CE(⊂C)Expo ed commodi ies i∈INS Ins i u ions (domes ic and es
o wo ld)
c∈CEN(⊂C)Commodi ies no in CE i ∈INSD(⊂INS)Domes ic ins i u ions
c∈CM(⊂C)Agg ega e impo ed commodi ies i∈INSDNG(⊂INSD)Domes ic non-go e nmen
ins i u ions
c∈CMN(⊂C)Commodi ies no in CM h ∈H(⊂INSDNG)Households
Economies 2025,13, 137 20 o 23
Table A1. Con .
Symbol Se s Explana ion Symbol Explana ion
Pa ame e s
cw scWeigh o commodi y cin he CPI pwmcImpo p ice ( o eign cu ency)
dw scWeigh o commodi y cin he p oduce
p ice index pwm c Impo p ice by egion ( o eign
cu ency)
icaca
Quan i y o cas in e media e inpu pe uni
o ac i i y aqds cQuan i y o s ock change
icdcc′
Quan i y o commodi y cas ade inpu pe
uni o c’ p oduced and sold domes ically pgc
Base-yea quan i y o go e nmen
demand
icecc′
Quan i y o commodi y cas ade inpu pe
expo ed uni o c’ qin c
Base-yea quan i y o p i a e
in es men demand
ice cc′
Quan i y o commodi y cas ade inpu pe
expo ed uni o c’ om egion shi i Sha e o domes ic ins i u ion iin
income o ac o
icmcc′
Quan i y o commodi y cas ade inpu pe
impo ed uni o c′shiiii′
Sha e o ne income o i′ o i
(i′∈INSDNG′;i∈INSDNG)
icm cc′
Quan i y o commodi y cas ade inpu pe
impo ed uni o c’ om egion aaTax a e o ac i i y a
in aaQuan i y o agg ega e in e media e inpu
pe ac i i y uni insiExogenous di ec ax a e o
domes ic ins i u ion i
i aaQuan i y o agg ega e in e media e inpu
pe ac i i y uni ins01i
0–1 pa ame e wi h 1 o
ins i u ions wi h po en ially lexed
di ec ax a es
mpsiBase sa ings a e o domes ic ins i u ion i mcImpo a i a e
mps01i0–1 pa ame e wi h 1 o ins i u ions wi h
po en ially lexed di ec ax a es m c Regional impo a i
pwecExpo p ice ( o eign cu ency) qcRa e o sales ax
pwe c Expo p ice by egion ( o eign cu ency) ns i
T ans e om ac o o ins i u ion i
G eek Symbols
αa
a
E iciency pa ame e in he CES ac i i y
unc ion δ
cCET unc ion sha e pa ame e
α a
a
E iciency pa ame e in he CES
alue-added unc ion δ a
a
CES alue-added unc ion sha e
pa ame e o ac o in ac i i y a
αac
c
Shi pa ame e o domes ic commodi y
agg ega ion unc ion γm
ch
Subsis ence consump ion o
ma ke ed commodi y c o
household h
αq
cA ming on unc ion shi pa ame e θac
Yield o ou pu cpe uni o ac i i y a
α
cCET unc ion shi pa ame e ρa
aCES p oduc ion unc ion exponen
αm
c
Shi pa ame e in he CES egional impo
unc ion ρ a
a
CES alue-added unc ion exponen
αe
c
Shi pa ame e in he CES egional expo
unc ion ρac
c
Domes ic commodi y agg ega ion
unc ion exponen
βaCapi al sec o al mobili y ac o ρq
cA ming on unc ion exponen
βm
ch
Ma ginal sha e o consump ion spending
on ma ke ed commodi y c o household hρ
cCET unc ion exponen
δa
aCES ac i i y unc ion sha e pa ame e ρm
c
Regional impo s agg ega ion
unc ion exponen
δac
ac
Sha e pa ame e o domes ic commodi y
agg ega ion unc ion ρe
c
Regional expo s agg ega ion
unc ion exponen
Economies 2025,13, 137 21 o 23
Table A1. Con .
Symbol Se s Explana ion Symbol Explana ion
δq
cA ming on unc ion sha e pa ame e ηa
a Sec o sha e o new capi al
υ Capi al dep ecia ion a e
Exogenous Va iables
CPI Consume p ice index MPSADJ Sa ings a e scaling ac o
(=0 o base)
DTINS Change in domes ic ins i u ion ax sha e
(=0 o base; exogenous a iable) QFS Quan i y supplied o ac o
FSAV Fo eign sa ings (FCU) TINSADJ
Di ec ax scaling ac o (=0 o base;
exogenous a iable)
GADJ Go e nmen consump ion
adjus men ac o WFDIST a
Wage dis o ion ac o o ac o in
ac i i y a
IADJ In es men adjus men ac o
Endogenous Va iables
AWFa
A e age capi al en al a e in ime QF a
Quan i y demanded o ac o om
ac i i y a
DMPS Change in domes ic ins i u ion sa ings
a es (=0 o base; exogenous a iable) QGcGo e nmen consump ion demand
o commodi y
DPI P oduce p ice index o domes ically
ma ke ed ou pu QHch
Quan i y consumed o commodi y c
by household h
EG Go e nmen expendi u es QHAach
Quan i y o household home
consump ion o commodi y c om
ac i i y a o household h
EHhConsump ion spending o household QINTAaQuan i y o agg ega e
in e media e inpu
EXR Exchange a e (LCU pe uni o FCU) QINTca Quan i y o commodi y cas
in e media e inpu o ac i i y a
GOVSHR Go e nmen consump ion sha e in
nominal abso p ion QINVcQuan i y o in es men demand
o commodi y
GSAV Go e nmen sa ings QMc
Quan i y o impo s o commodi y c
INVSHR In es men sha e in nominal abso p ion QMRc
Quan i y o impo s o commodi y c
by egion
Endogenous Va iables Con inued
PMSi
Ma ginal p opensi y o sa e o domes ic
non-go e nmen ins i u ion
(exogenous a iable)
QERc
Quan i y o expo s o commodi y c
o egion
PAaAc i i y p ice (uni g oss e enue) QQc
Quan i y o goods supplied o
domes ic ma ke
(composi e supply)
PDDcDemand p ice o commodi y p oduced
and sold domes ically QTcQuan i y o commodi y demanded
as ade inpu
PDSc
Supply p ice o commodi y p oduced and
sold domes ically QXAaQuan i y o (agg ega e)
alue-added
PEcExpo p ice (domes ic cu ency) QXcAgg ega ed quan i y o domes ic
ou pu o commodi y
PERc
Expo p ice by egion (domes ic cu ency)
QXACac Quan i y o ou pu o commodi y c
om ac i i y a
PINTAaAgg ega e in e media e inpu p ice o
ac i i y aRWF Real a e age ac o p ice
Economies 2025,13, 137 22 o 23
Table A1. Con .
Symbol Se s Explana ion Symbol Explana ion
PK Uni p ice o capi al in ime TABS To al nominal abso p ion
PMcImpo p ice (domes ic cu ency) TINSiDi ec ax a e o ins i u ion i
(i∈INSDNG)
PMRc
Impo p ice by egion (domes ic cu ency)
TRIIii′
T ans e s om ins i u ion i′ o i
(bo h in he se INSDNG)
PQcComposi e commodi y p ice WF A e age p ice o ac o
PVAaValue-added p ice ( ac o income pe uni
o ac i i y) YF Income o ac o
PXcAgg ega e p oduce p ice o commodi y YG Go e nmen e enue
PXACac P oduce p ice o commodi y c o
ac i i y aYIiIncome o domes ic
non-go e nmen ins i u ion
QAaQuan i y (le el) o ac i i y YIFi Income o domes ic ins i u ion i
om ac o
QDcQuan i y sold domes ically o
domes ic ou pu ∆Ka
a
Quan i y o new capi al by ac i i y
a o ime
QEcQuan i y o expo s
Sou ce: Sou h A ican Model and Lo g en e al. (2002).
No es
1
Ma ginal p oduc o capi al (o labou ) app oaches in ini y as capi al (o labou ) goes o 0 and app oaches 0 as capi al (o labou )
goes o in ini y.
2An inpu is essen ial i a s ic ly posi i e amoun is needed o p oduce a posi i e amoun o ou pu .
3De ailed desc ip ion o he models and hei wo kings a e p esen ed in he Appendix A.
4
Tha is, in his scena io, skilled and semi-skilled labou supply is inc eased by 2.97% (2.7 + 2.7
×
0.1) and in he second scena io,
skilled and semi-skilled labou inc eases by 3.105% and in he las scena io he a e o inc ease o skilled and semi-skilled labou
is 3.24%. The a e o inc ease o uneduca ed labou is adjus ed in such a way ha he o al labou supply g ows by 2.7%.
5
Uneduca ed a e hose wi h no o mal educa ion; p ima y educa ion e e s o hose wi h some o mal educa ion bu ha e no
comple ed high school; seconda y educa ion e e s o hose who comple ed high school bu no college; and e ia y educa ion
e e s o hose ha comple ed college educa ion.
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