Skip to main content

Advertisement

SpringerLink
Log in

Human versus physical capital: issues of accumulation, interaction and endogeneity

  • Published:
Economic Change and Restructuring Aims and scope Submit manuscript

Abstract

The human capital and physical capital are inextricably linked. Increase in the physical capital is assumed to affect the stock of human capital and vice versa. This paper examines the impact of increase in human capital on accumulation of physical capital and vice versa for a panel of 237 countries during the period 1971–2015. We also analyzed the interaction between these two types of capitals after disaggregating the countries by their income level. We used 3SLS and fixed effects estimation methods to obtain consistent and unbiased results in the presence of endogeneity. We found that investment in physical capital positively affects accumulation of human capital, but the impact of human capital investment on physical capital accumulation is not uniform. The impact of additional factors such as democracy, trade openness and ethnic fractionalization on human and physical capital is moderated by level of economic development of the countries. Results suggest that in order to accumulate physical capital subject to the resource constraints, low income countries must focus largely on primary education while high income countries should invest in secondary and more importantly in tertiary levels of education.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Notes

  1. http://data-planet.libguides.com/PennWorldTables.

References

  • Abbas Q, Mujahid-Mukhtar E (2000) The role of human capital in economic growth: a comparative study of Pakistan and India [with Comments]. Pak Dev Rev 39(4):451–473

  • Abramovitz M, David PA (1973) Reinterpreting economic growth: parables and realities. Am Econ Rev 63:428–439

    Google Scholar 

  • Acemoglu D, Naidu S, Restrepo P, Robinson JA (2014) Democracy does cause growth. No. w20004. National Bureau of Economic Research

  • Achen CH (2000) Why lagged dependent variables can suppress the explanatory power of other independent variables, vol 1001. Department of Political Science and Institute for Social Research, University of Michigan, Ann Arbor

    Google Scholar 

  • Aisen A, Veiga FJ (2013) How does political instability affect economic growth? Eur J Polit Econ 29:151–167. https://doi.org/10.1016/j.ejpoleco.2012.11.001

    Article  Google Scholar 

  • Alesina A, Devleeschauwer A, Easterly W, Kurlat S, Wacziarg R (2003) Fractionalization. J Econ Growth 8:155–194. https://doi.org/10.1023/A:1024471506938

    Article  Google Scholar 

  • Ando M, Hodoshima J (2007) A note on bootstrapped White’s test for heteroskedasticity in regression models. Econ Lett 97:46–51

    Article  Google Scholar 

  • Ashraf Q, Galor O (2011) The “Out of Africa” hypothesis, human genetic diversity, and comparative economic development. National Bureau of Economic Research, Cambridge

    Book  Google Scholar 

  • Barro RJ (1996) Democracy and growth. J Econ Growth 1:1–27

    Article  Google Scholar 

  • Barro RJ, Lee JW (2013) A new data set of educational attainment in the world, 1950–2010. J Dev Econ 104:184–198. https://doi.org/10.1016/j.jdeveco.2012.10.001

    Article  Google Scholar 

  • Barro RJ, Sala-I-Martin X (1995) Economic growth. Eur Psychiatry J Assoc Eur Psychiatr 25:159–163. https://doi.org/10.1016/j.eurpsy.2009.07.013

    Google Scholar 

  • Beck N, Katz JN (1996) Nuisance vs. substance: specifying and estimating time-series-cross-section models. Polit Anal 6:1–36

    Article  Google Scholar 

  • Becker GS (1993) Nobel lecture: the economic way of looking at behavior. J Polit Econ 101:385–409

    Article  Google Scholar 

  • Berthélemy J-C, Söderling L (2001) The role of capital accumulation, adjustment and structural change for economic take-off: empirical evidence from African growth episodes. World Dev 29:323–343

    Article  Google Scholar 

  • Bertocchi G, Canova F (2002) Did colonization matter for growth?: An empirical exploration into the historical causes of Africa’s underdevelopment. Eur Econ Rev 46:1851–1871. https://doi.org/10.1016/S0014-2921(01)00195-7

    Article  Google Scholar 

  • Blanco L, Grier R (2012) Natural resource dependence and the accumulation of physical and human capital in Latin America. Resour Policy 37:281–295

    Article  Google Scholar 

  • Blundell R, Dearden L, Meghir C, Sianesi B (1999) Human capital investment: the returns from education and training to the individual, the firm and the economy. Fiscal Stud 20:1–23

    Article  Google Scholar 

  • Boudarbat B, Lemieux T, Riddell WC (2010) The evolution of the returns to human capital in Canada, 1980–2005. Can Public Policy 36:63–89

    Article  Google Scholar 

  • Breton TR (2013) The role of education in economic growth: theory, history and current returns. Educ Res 55:121–138

    Article  Google Scholar 

  • Brugger F, Lizárraga Zamora K (2014) Why commodity booms have not (Yet?) boosted human capital: Bolivia’s struggle to create a skilled workforce. In: Carbonnier G, Carton M, King K (eds) Education, learning, training: critical issues for development, vol 5. Brill Nijhoff, Leiden, pp 81–101

  • Burkhart RE, Lewis-Beck MS (1994) Comparative democracy: the economic development thesis. Am Polit Sci Rev 88:903–910

    Article  Google Scholar 

  • Caballé J, Santos MS (1993) On endogenous growth with physical and human capital. J Polit Econ 101:1042–1067

    Article  Google Scholar 

  • Chatterji M (1998) Tertiary education and economic growth. Reg Stud 32:349–354. https://doi.org/10.1080/00343409850117807

    Article  Google Scholar 

  • Choucri N, North RC (1975) Nations in conflict: national growth and international violence. WH Freeman, San Francisco

    Google Scholar 

  • Cleeve EA, Debrah Y, Yiheyis Z (2015) Human capital and FDI inflow: an assessment of the African case. World Dev 74:1–14

    Article  Google Scholar 

  • Cooray A, Dutta N, Mallick S (2016) Does female human capital formation matter for the income effect of remittances? Evidence from developing countries. Oxford Dev Stud 44:458–478

    Article  Google Scholar 

  • Cuaresma JC (2017) Income projections for climate change research: a framework based on human capital dynamics. Glob Environ Change 42:226–236. https://doi.org/10.1016/j.gloenvcha.2015.02.012

    Article  Google Scholar 

  • Dearmon J, Grier R (2011) Trust and the accumulation of physical and human capital. Eur J Polit Econ 27:507–519

    Article  Google Scholar 

  • Dell M, Jones BF, Olken BA (2012) Temperature shocks and economic growth: evidence from the last half century. Am Econ J Macroecon 4:66–95

    Article  Google Scholar 

  • Diez MMG, Villadoniga MJP, Rodriguez JP (2011) Returns on the human capital of foreign and native workers in Spain. Rev Educ 355:405–418

    Google Scholar 

  • Dronkers J, Van der Velden R (2013) Positive but also negative effects of ethnic diversity in schools on educational performance? An empirical test using PISA data. In: Windzio M (ed) Integration and inequality in educational institutions. Springer, Dordrecht, pp 71–98

    Chapter  Google Scholar 

  • Duffy J, Papageorgiou C (2000) A cross country empirical investigation of the aggregate production function specification. J Econ Growth 5:87–120

    Article  Google Scholar 

  • Faye ML, McArthur JW, Sachs JD, Snow T (2004) The challenges facing landlocked developing countries. J Human Dev 5:31–68. https://doi.org/10.1080/14649880310001660201

    Article  Google Scholar 

  • Fedderke J, Klitgaard R (1998) Economic growth and social indicators: an exploratory analysis. Econ Dev Cult Change 46:455–489

    Article  Google Scholar 

  • Feenstra RC, Inklaar R, Timmer MP (2015) The next generation of the Penn World Table. Am Econ Rev 105:3150–3182

    Article  Google Scholar 

  • Fleisher B, Li HZ, Zhao MQ (2010) Human capital, economic growth, and regional inequality in China. J Dev Econ 92:215–231

    Article  Google Scholar 

  • Franck R, Rainer I (2012) Does the leader’s ethnicity matter? Ethnic favoritism, education, and health in sub-Saharan Africa. Am Polit Sci Rev 106:294–325

    Article  Google Scholar 

  • Gourinchas P-O, Jeanne O (2013) Capital flows to developing countries: the allocation puzzle. Rev Econ Stud 80:1484–1515

    Article  Google Scholar 

  • Graca J, Jafarey S, Philippopoulos A (1995) Interaction of human and physical capital in a model of endogenous growth. Econ Plan 28:93–118

    Article  Google Scholar 

  • Greiner A (1999) Endogenous growth through externalities of investment: a different approach. Atl Econ J 27:86–90

    Article  Google Scholar 

  • Grier RM (2002) On the interaction of human and physical capital in Latin America. Econ Dev Cult Change 50:891–913

    Article  Google Scholar 

  • Grier R (2005) The interaction of human and physical capital accumulation: evidence from Sub-Saharan Africa*. Kyklos 58:195–211. https://doi.org/10.1111/j.0023-5962.2005.285_1.x

    Article  Google Scholar 

  • Griliches Z (1967) Distributed lags: a survey. Econometrica 35(1):16–49. https://doi.org/10.2307/1909382

  • Gyimah-Brempong K, Paddison O, Mitiku W (2006) Higher education and economic growth in Africa. J Dev Stud 42:509–529

    Article  Google Scholar 

  • Henry M, Kneller R, Milner C, Girma S (2012) Do natural barriers affect the relationship between trade openness and growth?*. Oxford Bull Econ Stat 74:1–19. https://doi.org/10.1111/j.1468-0084.2011.00636.x

    Article  Google Scholar 

  • Hibbs DA (1973) Problems of statistical estimation and causal inference in time-series regression models. Sociol Methodol 5:252–308

    Article  Google Scholar 

  • Hye QMA (2011) Long term effect of trade openness on economic growth in case of Pakistan. Qual Quant 46:1137–1149. https://doi.org/10.1007/s11135-011-9612-0

    Article  Google Scholar 

  • Jiang Y (2012) An empirical study of openness and convergence in labor productivity in the Chinese provinces. Econ Change Restruct 45:317–336. https://doi.org/10.1007/s10644-011-9120-1

    Article  Google Scholar 

  • Jimenez E, Nguyen V, Patrinos HA (2012) Stuck in the middle? Human capital development and economic growth in Malaysia and Thailand. In: Human capital development and economic growth in Malaysia and Thailand (November 1, 2012). World Bank Policy Research Working Paper

  • Joshua J (2015) The contribution of human capital towards economic growth in China. Palgrave Macmillan, Basingstoke

    Book  Google Scholar 

  • Keele L, Kelly NJ (2005) Dynamic models for dynamic theories: the ins and outs of lagged dependent variables. Polit Anal 14:186–205

    Article  Google Scholar 

  • Knutsen CH (2012) Democracy and economic growth: a survey of arguments and results. Int Area Stud Rev 15:393–415. https://doi.org/10.1177/2233865912455268

    Article  Google Scholar 

  • Lau LJ, Jamison DT, Louat FF (1991) Education and productivity in developing countries: an aggregate production function approach, vol 612. World Bank Publications, Washington, DC

    Google Scholar 

  • Li YH, Wang X, Westlund H, Liu YS (2015) Physical capital, human capital, and social capital: the changing roles in China’s economic growth. Growth Change 46:133–149

    Article  Google Scholar 

  • Lucas Jr RE (1993) Making a miracle. Econometrica 61(2):251–272. https://doi.org/10.2307/2951551

  • Millán JM, Congregado E, Román C (2014) Entrepreneurship persistence with and without personnel: the role of human capital and previous unemployment. Int Entrepreneurship Manag J 10:187–206

    Article  Google Scholar 

  • Mincer J (1975) Education, experience, and the distribution of earnings and employment: an overview. In: Thomas Juster F (ed) Education, income, and human behavior. NBER, US, pp 71–94

  • Montalbano P (2011) Trade openness and developing countries’ vulnerability: concepts, misconceptions, and directions for research. World Dev 39:1489–1502

    Article  Google Scholar 

  • Murthy NV, Chien I (1997) The empirics of economic growth for OECD countries: some new findings. Econ Lett 55:425–429

    Article  Google Scholar 

  • Musila JW, Yiheyis Z (2015) The impact of trade openness on growth: the case of Kenya. J Policy Model 37:342–354

    Article  Google Scholar 

  • Nelson RR, Phelps ES (1966) Investment in humans, technological diffusion, and economic growth. Am Econ Rev 56:69–75

    Google Scholar 

  • Neycheva M (2013) Does higher level of education of the labor force cause growth? Evidence from Bulgaria. Econ Change Restruct 46:321–339. https://doi.org/10.1007/s10644-013-9139-6

    Article  Google Scholar 

  • Pablo-Romero MD, Gomez-Calero MD (2013) A translog production function for the Spanish provinces: impact of the human and physical capital in economic growth. Econ Model 32:77–87

    Article  Google Scholar 

  • Pastore F, Verashchagina A (2006) Private returns to human capital over transition: a case study of Belarus. Econ Educ Rev 25:91–107

    Article  Google Scholar 

  • Pattanaik F, Nayak NC (2014) Economic freedom and economic growth in India: what is the empirical relationship? Econ Change Restruct 47:275–298. https://doi.org/10.1007/s10644-014-9150-6

    Article  Google Scholar 

  • Pirili MU, Lenger A (2012) Public capital and social infrastructure in regional development: an empirical study for Turkey. Iktisat Islet Finans 27:9–37

    Google Scholar 

  • Powell JM, Thyne CL (2011) Global instances of coups from 1950 to 2010: a new dataset. J Peace Res 48(2):249–259

    Article  Google Scholar 

  • Powell-Jackson T, Basu S, Balabanova D, McKee M, Stuckler D (2011) Democracy and growth in divided societies: a health-inequality trap? Soc Sci Med 73:33–41. https://doi.org/10.1016/j.socscimed.2011.04.013

    Article  Google Scholar 

  • Psacharopoulos G (1994) Returns to investment in education: a global update. World Dev 22:1325–1343

    Article  Google Scholar 

  • Repkine A (2014) Ethnic diversity, political stability and productive efficiency: empirical evidence from the African countries. S Afr J Econ 82:315–333. https://doi.org/10.1111/saje.12019

    Article  Google Scholar 

  • Rodriguez-Pose A, Vilalta-Bufi M (2005) Education, migration, and job satisfaction: the regional returns of human capital in the EU. J Econ Geogr 5:545–566

    Article  Google Scholar 

  • Rogers ML (2008) Directly unproductive schooling: how country characteristics affect the impact of schooling on growth. Eur Econ Rev 52:356–385. https://doi.org/10.1016/j.euroecorev.2007.03.001

    Article  Google Scholar 

  • Romer PM (1990) The problem of development: a conference of the institute for the study of free enterprise systems The. J Polit Econ 98:71–102

    Article  Google Scholar 

  • Romer P (1993) Idea gaps and object gaps in economic development. J Monetary Econ 32:543–573

    Article  Google Scholar 

  • Sachs JD (2001) Tropical underdevelopment. National Bureau of Economic Research, Cambridge

    Book  Google Scholar 

  • Schultz TW (1961) Investment in human capital. Am Econ Rev 51:1–17

    Google Scholar 

  • Schultz TW (1993) The economic importance of human capital in modernization. Educ Econ 1:13–19

    Article  Google Scholar 

  • Siddiqui A, Rehman A (2017) The human capital and economic growth nexus: in East and South Asia. Appl Econ 49:2697–2710

    Article  Google Scholar 

  • Upadhyay MP (1994) Accumulation of human capital in LDCs in the presence of unemployment. Economica 61(243):355–378

  • Vandenbussche J, Aghion P, Meghir C (2006) Growth, distance to frontier and composition of human capital. J Econ Growth 11:97–127

    Article  Google Scholar 

  • Yanovskiy K, Shulgin S (2013) Institutions, democracy and growth in the very long run. Acta Oecon 63:493–510. https://doi.org/10.1556/AOecon.63.2013.4.5

    Article  Google Scholar 

  • Zhang C, Zhuang L (2011) The composition of human capital and economic growth: evidence from China using dynamic panel data analysis. China Econ Rev 22:165–171. https://doi.org/10.1016/j.chieco.2010.11.001

    Article  Google Scholar 

  • Zhou Y (2016) Human capital, institutional quality and industrial upgrading: global insights from industrial data. Econ Change Restruct. https://doi.org/10.1007/s10644-016-9194-x

    Google Scholar 

Download references

Acknowledgements

We thank Arnab Basu and Leah Bevis for their valuable comments and suggestions for improving the draft.

Author information

Authors and Affiliations

  1. Department of Management Sciences, COMSATS Institute of Information Technology, Lahore, Pakistan

    Rafi Amir-ud-Din & Muhammad Usman

  2. Courant Research Centre “Poverty, Equity and Growth in Developing and Transition Countries”, Georg August University, Gottingen, Germany

    Faisal Abbas

  3. Policy Solutions Lab, Sustainable Development Policy Institute (SDPI), Islamabad, Pakistan

    Sajid Amin Javed

Authors
  1. Rafi Amir-ud-Din
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Muhammad Usman
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Faisal Abbas
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Sajid Amin Javed
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Rafi Amir-ud-Din.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Amir-ud-Din, R., Usman, M., Abbas, F. et al. Human versus physical capital: issues of accumulation, interaction and endogeneity. Econ Change Restruct 52, 351–382 (2019). https://doi.org/10.1007/s10644-017-9225-2

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10644-017-9225-2

Keywords

Search

Navigation