In what ways does human capital influence the relationship between financial development and economic growth?

Abstract

PurposeHuman capital is a portfolio of rich skills that the labour possesses. Human capital has attracted significant attention from scholars. Nevertheless, empirical findings on the utility of human capital have often been divided. To address the research gap in the literature, the authors attempt to understand how human capital plays a significant role in financial development and economic growth nexus.Design/methodology/approachThe authors rely on secondary data published by the World Bank. The authors use econometric tools such as the autoregressive distributive lag (ARDL) model and related statistical tests to study the relationship between human capital, India's financial growth and gross domestic product (GDP) growth.FindingsStudy findings suggest that human capital and financial development contribute significantly to economic growth. Further, the authors found that human capital has a positive and significant moderating effect on the path of joining financial development and economic growth.Practical implicationsThe study contributes to the human capital debate. Despite the rich body of literature, the study based on World Bank data confirms the previous findings that investment in human capital is always useful for the financial and economic growth of the nation.Originality/valueThis paper reveals some unique findings regarding effect of financial development and economic growth nexus which opens the window of new dimension to think about their nexus. It also provides a different pathway to foster the economic growth by using human capital and financial development as together, especially in India.