Human Capital Spending, Inequality, and Growth in Middle-Income Asia

27 Pages Posted: 8 Jun 2018

See all articles by Michael R.M. Abrigo

Michael R.M. Abrigo

Philippine Institute for Development Studies

Sang-Hyop Lee

University of Hawaii - Department of Economics

Donghyun Park

Asian Development Bank - Economic Research

Date Written: December 1, 2017

Abstract

Asia’s rapid population aging fortifies the case for strengthening human capital investments. Further, the experience of the newly industrialized economies suggests that human capital investments will be a vital ingredient of the transition from middle income to high income. Those investments can also affect equity and public finances. In this paper, we use data from the National Transfer Accounts to empirically analyze the effect of human capital investment in Asian countries on economic growth, inequality, and fiscal balance. Our empirical evidence suggests that human capital investments have a positive effect on labor productivity and, hence, output. The positive effect is stronger for poorer households and, hence, beneficial for equity. We also find that such investments can generate sufficient tax revenues to improve the fiscal balance. Overall, our evidence points to a positive effect of human capital on growth, equity, and fiscal balance in Asia.

Keywords: Asia, fiscal balance, growth, human capital, inequality

JEL Classification: J24, H52, I24, I25

Suggested Citation

Abrigo, Michael R.M. and Lee, Sang-Hyop and Park, Donghyun, Human Capital Spending, Inequality, and Growth in Middle-Income Asia (December 1, 2017). ADBI Working Paper 529, Available at SSRN: https://ssrn.com/abstract=3187925 or http://dx.doi.org/10.2139/ssrn.3187925

Michael R.M. Abrigo

Philippine Institute for Development Studies ( email )

NEDA sa Makati Bldg.
106 Amorsolo St., Legaspi Village
Manilla, NCR 1229
Philippines

Sang-Hyop Lee

University of Hawaii - Department of Economics ( email )

2424 Maile Way, SSB 542
Honolulu, HI 96822
United States
808-956-8590 (Phone)

Donghyun Park (Contact Author)

Asian Development Bank - Economic Research ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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