The hotly debate of human capital and economic growth: why institutions may matter?

Abstract

In neo-classical theory, evidences are found that human capital is a progressive contributor of economic growth. However, empirically the relationship may not always hold across the countries. The present study can (1) strengthen the role of human capital in accounting for current scenario (2) reunite the prevailing conditions for economic growth and (3) investigates complementary or substitutionary effects of trade openness, inflation and human capital with institutions on economic growth. The results divulge that human capital alone may not be a significant contributor to economic growth in selected Asian Countries. Institutions reinforce the impact of human capital on economic growth; as they provide necessary conditions to amplify the impact of human capital development. The sufficient condition is the presence of high-quality institutional structure with trade openness and human capital as complementary effect on per capita GDP growth. The impact of inflation (proxy of macro-economic policies) has substitutionary effect with institution.