Human capital plays a vital role in economics development of a country. Individuals, being well-educated human lower the knowledge gaps and increase the efficiency of the institutions. This study focuses on the impact of human capital on Pakistan's financial development. Human capital is measured at three stages of schooling: primary, secondary, and higher education. The data is from 1980 to 2019, and the Bayesian VAR estimation is used to reduce the consequences of overfitting variables. The result reveals that positive shock in human capital promotes financial development in Pakistan, also we find that inflation along with domestic credit and government expenditures negatively influence financial development however trade and investment have a positive contribution. Overall the study findings suggest that higher education explains a large share of changes in the financial development index in Pakistan.

Keywords

Education Level, Higher education, Financial development, Pakistan and Bayesian VAR