An empirical relationship between financial development indicators and human capital in some selected Asian countries

Abstract

PurposeThe purpose of this paper is to investigate the relationship between financial development indicators and human capital for Asian countries using the annual data from 1984-2013.Design/methodology/approachThe stationarity of the variables are checked by Levin-Lin-Chu, Im-Pesaran-Shin, Fisher-type augmented Dickey-Fuller and Philips-Perron panel unit-root tests. The Pedroni’s and Kao’s panel co-integration approaches are employed to examine the long-run relationship among the variables. To estimate the coefficients of co-integrating vectors, both panel dynamic ordinary least squares (PDOLS) and fully modified ordinary least squares (FMOLS) techniques are used. The short-term and long-run causality is examined by panel granger causality.FindingsThe Pedroni’s and Kao’s co-integration approaches support the existence of the long-run relationship among the indicators of financial development, economic growth and human capital. The PDOLS and FMOLS estimators revealed that both financial development indicators and economic growth variable act as an important driver for the increase in human capital. The results of panel granger causality indicate that causality runs from indicators of financial development, economic growth and public spending on education to human capital.Originality/valueThere is hardly any study that examine the impact of financial development indicators and economic growth on human capital in Asian economies, therefore the present study fill the research gap in the literature.