The Effect of Higher Education on Economic Growth in Iran: An Application of Bounds Test Approach

In order to evaluate the role of higher education on economic growth in Iran, this paper investigates the effect of employees with university education on economic growth by applying Bounds test approach and Conditional Granger causality test. The bounds test results confirmed the long-run equilibrium relationship between higher education and economic growth. In addition, the Error Correction Model's estimation indicated that nearly 75 per‌cent of disequilibrium of the real income growth converges back to the self long-run equilibrium. Moreover, the results showed that higher education will effects economic growth the same as capital stock in the short and long-run. Conditional Granger causality test results did not confirm short-run causality relationship between variables but the indirect one-way causality from higher education growth to economic growth. With respect to the existence of the long-run relationship between higher education and economic growth, more investment in higher education to achieve higher economic growth has economic justification and is recommended.