Finance, Human Capital and Economic Development: A Multi-Dimensional Analysis and Long-Run Impacts

Abstract

Applying panel fully modified OLS for a global sample of 88 economies over two decades, this study investigates how the growth affects financial development and human capital accumulation in the long-run. The human capital accumulation has a significant positive impact on the output in our full sample and the LMEs, while it appears to have a significant negative impact for the HIEs. The financial development is found to have a significant positive impact. This article investigates the long term effects of FD and human capital on economic development. Our empirical results highlight the positive impacts of financial development (in general) on economic development. Generally speaking, human capital seems to have a long-run positive influence - the results from dynamic fixed effects autoregressive distributed lag (DFE ARDL) show that the positive impact of human capital is consistent in the long-run, but not really statistically significant in the short run. Financial markets mostly have short-run positive impact and financial institutions have a long-run positive impact on the GDP. Finally, the association between the financial development and human capital in the LMEs shows a significant positive impact for all indicators. These results imply a stronger impacts of the FD in case of the LMEs (or lower level of human capital).