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The prominence of positive psychological capital in enhancing desirable outcomes for both individual employees and organizations in the work setting is well-established. However, empirical studies focusing on the application of psychological capital in educational settings to foster positive learning outcomes such as positive psychological functioning and active participation in learning have been significantly limited. To address this research gap, we conducted a quantitative cross-sectional study to examine the extent to which psychological capital predicts psychological wellbeing and student engagement, mediated through academic stress. Participants of the study were higher education students (N = 562) pursuing undergraduate and postgraduate studies in Eritrean higher education institutions. They completed a battery of tests measuring their psychological capital, academic stress, psychological wellbeing, and student engagement. Hierarchical multiple regression and PROCESS macro analyses were conducted to determine the prediction and mediational effects. Regression results supported the hypotheses that psychological capital significantly and positively predicted both psychological wellbeing and student engagement. This suggests that higher education students with higher levels of psychological capital show better positive psychological functioning and are more engaged in learning. Additionally, students experiencing higher levels of academic stress tended to have poorer psychological wellbeing. The mediational analysis further indicated that academic stress partially mediated the relationship of psychological capital with psychological wellbeing but not with student engagement. The findings of the study are expected to contribute to our understanding of the application of psychological capital in the context of higher education students for fostering their psychological wellbeing and academic engagement.
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