Effect of human development index on GDP for developing countries: a panel data anaysis

Abstract

Purpose - The main purpose of this study is to test the effect of human and physical capital on GDP. The study aims to realize this by means of using gross fixed capital formation as physical capital indicator and education expenditures, life expectancy at birth as human capital indicators by analyzing the data of the 16 developing countries Methodology – This study aims to determine the long-run impact of physical and human capital on GDP by using the panel data set of 16 developing countries over the period 1990–2018. In the established model, growth (GDP) is the dependent variable, Human Development Index (HDI), Inflation (INF), Government Capital, ODA proxied as official development assistant, Investment (INV) proxied as foreign direct investment and Labour (LAB) as independent and control variables are included. Random and Fixed effects estimation techniques are employed to analyse and assess the significance relationship between economic growth and human development index. Findings- According to test results, human development supports economic growth. It can be noticed that inflation is significant and have a negative relationship with economic growth and development for our sample and period. It can be recorded that Labour (LAB) has a significant and is positively related to economic growth. Goverment capital (GC) is seen to be positively related to growth (GDP) and also significant. Conclusion- The key findings and results of the study suggested the existence of a positive and significant impact of human development on economic growth and development in developing countries. The study employed Human Development Index as the main variable of interest with GDP considered as the dependent variable with inflation, gross capital, foreign direct investment and labour as control variables. The study also came out with the findings that labour also have a positive and significant relationship with growth as recorded by most researchers. More governmental efforts should be placed on the development of the human capital. For the area of life expectancy, governments should provide good and better health care policies and facilities, health insurance for every citizen.