EuroEconomica, Vol 37, No 3 (2018)

Is human capital development a channel through which financial development influences economic growth? A case of emerging markets.

Kunofiwa Tsaurai


The impact of financial development on economic growth has been widely and extensively researched in recent years. The findings show that financial development-led economic growth nexus is no longer a disputable matter in the discipline of finance and economics. What is yet to be fully explored are the different channels through which financial development affects economic growth. The current study focused on exploring whether human capital development is a channel which enhances financial development led economic growth in emerging markets using the dynamic generalised methods of moments (GMM) approach with data from 1994 to 2014. A similar study done by Abubakar et al (2015) focused on the ECOWAS region, used panel data analysis approaches which ignored the dynamic nature of the dependent variable and the endogeneity problem. The study found out that stock market capitalisation, stock market turnover and the outstanding domestic public debt securities are the financial development variables which had a positive influence on economic growth through human capital development channel in emerging markets, consistent with Abubakar et al (2015). The study therefore urges emerging markets to implement policies aimed at accelerating human capital development efforts in order to speed up the rate at which financial development (stock market turnover, outstanding domestic public debt securities and stock market capitalisation) influences economic growth. Taking into account the results of the relationship between explanatory variables and the dependent variable, the study encourages emerging markets to implement policies and programmes directed at promoting savings, infrastructural development and FDI inflows in order to enhance economic growth. Future studies can focus on investigating the existence of various other channels through which financial sector development improves economic growth in emerging markets.


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