Financial Development and the Relationship between “Human Capital-Economic Growth”: A Comparative Analysis between Developed and Developing Countries

Document Type : Research Paper

Authors

1 Faculty of Economics and Management, Institute for Humanities and Cultural Studies (IHCS)

2 MA in Economics, Institute for Humanities and Cultural Studies

3 Assistant Professor in Economics, Institute for Humanities and Cultural Studies

10.30465/jnet.2023.44412.2002

Abstract

This study examines the impact of financial development on the relationship between human capital and economic growth in selected developing and developed countries during 1980-2016. The fundamental question is whether financial development can strengthen/weaken the impact of human capital on economic growth?
Model estimation is performed in two steps. First, the effect of human capital on economic growth has been estimated using the rolling regression method. In the second step, the human capital coefficients extracted from the rolling regression of the first step, have been regressed on the multidimensional index of financial development in two separate groups of developing and developed countries, using a panel data model. This multidimensional index is calculated as a weighted average of seven financial development indices using the principal component analysis method.
The findings show that the increase in human capital mostly increases the economic growth, and besides that, the increase in financial development, strengthens the impact of human capital on economic growth. This strengthening is more in developing countries than in developed countries. These findings imply that achieving higher growth rates, especially in developing countries, depends on the optimal combination of sufficiently high levels of human capital and financial development.

Keywords: Rolling regression, Financial development, Human capital, Economic growth, Panel data

Keywords

References

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  • Receive Date: 07 February 2023
  • Revise Date: 22 February 2023
  • Accept Date: 08 March 2023

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