Growth Effects of Human Capital and Stages of Economic Development: A Panel Data Investigation of Different Country Experiences

The empirical literature on the role of Human Capital (HC) for economic growth has reached strong evidence for a robust positive relationship mainly through cross- country growth regressions. This paper using a large panel of data (93 countries) investigates the growth effects of human capital taking into account the different stages of economic development across countries and identifies those factors that may affect the above effects. Our findings suggest that education has indeed a significant and positive long-run effect on economic growth that is found to be increasing with the level of education. Moreover, the significance of this growth effect depends upon the particular stage of development with countries at the lowest spectrum of economic development obtaining relatively higher growth effects from all levels of education. Next, we find that taxation and technological development are important determinants of human capital productivity. Our findings have a number of straightforward policy implications: First investment in education--especially tertiary education-can have strong growth-enhancing effects; second, advanced and developing countries should focus more on the provision of tertiary education, while countries with medium levels of economic development need, a more strategic government approach that could encourage simultaneously investment in human, as well as, in physical capital; finally, policy measures aiming at enhancing ; the productivity of human capital must focus their effort into technology penetration and re-distribution policies.