Abstract
Financial development and human capital’s crucial roles in economic growth have been widely recognized in the literature. However, a direct link between financial development and human capital, in the long run, has not been investigated, in particular in emerging markets in Asia. This study investigates the nexus between financial development and human capital for a group of nine emerging markets in the Southeast Asian region over the period 1990–2018. Econometric techniques allowing for cross-sectional dependence and panel co-integration, such as the dynamic least squares (DOLS) and fully modified least squares (FMOLS), are used. We also use three indicators as the proxies for financial development: broad money supply, bank credit, and private sector credit. Empirical findings from this paper indicate that financial development contributes positively and significantly to human capital accumulation. We also find that economic growth enhances the formation of human capital. Results from our Granger causality tests confirm a bi-directional relationship between financial development and human capital. Policymakers from the Southeast Asian emerging markets may need to enhance and extend financial development which is closely linked with human capital accumulation.
Highlights
Economic growth is a multidimensional concept that reflects the changing process of the economy and society
We argue that a direct link between financial development and human capital, key pillars to economic growth and development in these countries, in the long run has not been investigated
Dynamic ordinary least squares (DOLS) and fully modified ordinary least squares (FMOLS) Table 8 presents a long-run panel elasticity using the panel fully modified least squares (FMOLS) estimator developed by Phillips and Hansen (1990) and the panel DOLS estimator proposed by Kao and Chiang (2000)
Summary
Economic growth is a multidimensional concept that reflects the changing process of the economy and society. Previous studies have been conducted to examine the relationship between financial development, economic growth and human capital for various countries (Sethi et al, 2019 for six selected South Asian economies; Maitra, 2018 for Bangladesh; Sehrawat & Giri, 2017 for ten selected Asian economies; Akhmat et al, 2014 for five South Asian Association for Regional Cooperation (SAARC); Nik et al (2013) for Iran; Bittencourt (2012) for four Latin American coun tries; Kendall (2012) for India; Chi (2008) for China; Shan and Morris (2002) for 19 OECD countries and China; Ranis et al (2000) for 76 developing countries.
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