Human Capital and Economic Growth: Evidence from Selected Developing Countries

Abstract

Despite the crucial role of human capital in the theoretical growth models, the empirical growth literature has yet to develop a consensus on the nature of relationship between human capital and economic growth. This study has been conducted to investigate whether human capital in terms of education and health indicators has a direct impact on output growth or indirect effect through total factor productivity growth. The study also attempts to explore the linear as well as non linear human capital-growth linkages and sensitivity of the human capital estimates to different econometric estimation techniques. The study has been conducted on a sample of selected countries covering all developing regions of the world. Our findings reveal that human capital has a well established role in accelerating growth through both its ‘level effects’ and ‘rate effects’. The results are not sensitive to the definition of the education variable. The impact of human capital components on both output growth and TFP growth are positive regardless of the estimation technique employed. However, the significance of the coefficients of human capital components changes with the estimation technique. The parametric models in general do not give sufficient evidence for non linearity in the human capital-growth relationship. The semi parametric model, on the other hand, points out the existence of the non linear link, yet it does not indicate the exact form of the non linear connection.