Globalization, human capital accumulation and economic growth in selected developed and developing countries

Abstract

The importance of human capital in the improvement of growth and productivity is one of the most important issue that has received great attention from economists. Notably, reaching to economic growth has been one of the concerns of economists in recent decades, and it requires some special mechanisms such as human capital index and globalization. While economic growth is driven by human capital, most resource-rich countries lack necessary human capital, as natural capital crowds out human capital. Globalization helps a country to exploit the benefits of openness, as globalization mitigates downside risk. Meanwhile, the increased capital flows that come from openness may allow producers to take advantage of a diversified portfolio to invest in riskier projects that can lead to rapid economic growth and expedited lending and borrowing (Obstfeld, 1994). This research tries to examine the mutual relationships between three variables, globalization, human capital accumulation, and economic growth, by theoretical analysis and modeling of macroeconomic conditions and an adaptive comparison between 23 selected developing countries and 33 developed countries over the 1995-2017 period using systemic panel data based on the generalized method of moments. The results of the tests indicate that at the 95% confidence interval, an increase in globalization, economic growth, and life expectancy leads to an increase in human capital. In contrast, an increase in the rate of urbanization does not cause an effectively improvement in the human capital index in the selected countries. Moreover, an increase in human capital, economic growth, population growth rate, development of telecommunication infrastructures, and foreign direct investment affect globalization. Finally, human capital, globalization, labor, and investment affect the economic growth of the selected countries. According to the results, the multiplier coefficients of the dependent variables was estimated and analyzed for the two groups of countries, developing and developed countries. It was found that the changes in globalization and economic growth had more effect on human capital for the developed countries studied, compared with developing countries. Moreover, the multiplier coefficient effect of human capital on globalization in developed countries is more than that for developing countries. In other words, the changes in human capital had more effect on globalization in developed countries. However, for developing countries, the multiplier coefficient effect of economic growth on globalization was more than two times that of developed countries. This result means that a given change in economic growth leads to a more significant increase and improvement in the globalization of developing countries studied in the period mentioned, compared with the developed countries. These results may be due to more vacant capacities and potentials of developing countries, compared with the developed countries whose economy is often at full capacity and has not a high growth multiplier. Indeed, the changes in the globalization and human capital variables more affect the economic growth of developed countries compared with developing countries