The Impact of Human Development on Economic Growth: A Panel Data Approach

Abstract

The development of its people is one of the principal objectives of an economy. To the ambit that greater capabilities and opportunities will improve the productivity of people, human development is also expected to have a positive influence on economic growth. The primary objective of this paper is to empirically examine whether human development significantly affects economic growth. We use panel data consisting of 25 developed and 25 developing countries from the year 2000 to 2014. The data has been collected from Human Development Report (UNDP) and World Development Indicators (World Bank). Ordinary least squares, fixed effects, and random effects models have been employed for the examination. One set of the equations uses HDI as an aggregated measure of human development. The second set uses health and education as dis-aggregated measures of human development to assess their separate effects on growth. A significantly positive relationship between HDI and economic growth can be found in the cases of both developed and developing economies. Life expectancy and primary gross enrollment ratio used as measures of health and education, respectively, impact economic growth negatively.

Keywords: Human Development, Economic Growth, Fixed Effects Model, Random Effects Model, HDI, GDP growth

JEL Classification: J24, O15