Global evidence on human capital and economic growth: The role of investment and demographics

Abstract

This study investigates the interplay between human capital, investment, and demographic factors in shaping economic growth across 167 countries from 2010 to 2022. Using data sourced from the World Bank's Global Financial Development dataset and employing robust regression models, the research highlights the significant contribution of human capital to enhancing productivity and growth. The analysis identifies investment and urbanization as key moderating factors that amplify the positive effects of human capital on economic growth. Specifically, the interaction between human capital and investment in physical assets, as well as human capital and urbanization, yields greater economic benefits than these elements independently. These findings underscore the synergy between skilled labor and infrastructure development in fostering sustainable growth. The results further reveal the nuanced role of health and education expenditures, which, despite their essentiality for long-term development, demonstrate short-term cost implications. The study also emphasizes the importance of trade openness, foreign direct investment, and institutional quality in supporting economic performance, while acknowledging the variability of these effects across different economic contexts. Urbanization emerges as a critical factor, enhancing access to services and optimizing the use of human capital. This research contributes to the existing literature by integrating investment and demographic dimensions into the analysis of human capital's impact on growth. It offers actionable insights for policymakers, investors, and managers, advocating for integrated strategies that prioritize education, healthcare, infrastructure, and urban development. The findings suggest that balanced and synergistic investments in human and physical capital are crucial for maximizing growth potential. This work advances the understanding of the dynamic relationships between economic growth determinants and provides a framework for more effective policy interventions aimed at sustainable development.