Skip to main content

Advertisement

SpringerLink
Log in

Impact of financial development on SAARC’S human development

  • Published:
Quality & Quantity Aims and scope Submit manuscript

Abstract

The objective of the study is to investigate the link between economic growth and financial development (i.e., broad money supply, credit to private sector (CPS) and bank deposit liabilities) in human development for a panel of selected South Asian Association for Regional Cooperation (SAARC) countries; namely, Bangladesh, India, Nepal, Pakistan and Sri Lanka during 1988–2008; over the period of 1988–2008. The panel cointegration technique is employed for analysis of short and long-run relationship between the variables. The results of panel cointegration found that there is a long-run relationship between financial development indicators and economic growth in human development in SAARC region. The estimated results indicate that in the short run, bank deposit liabilities exerts the maximum impact (i.e., 0.425 %) on human development in SAARC region, subsequently, broad money supply (i.e., 0.301 %) and CPS (i.e., 0.128 %) respectively, while there is a negative relationship between real GDP growth and human capital (i.e., \(-\)0.189 %). In the long-run, DOLS estimator constitutes broad money supply which increases by 0.912 %, followed by credit to private sector (i.e., 0.121 %) on human development. While, in case of FMOLS estimator, these results are disappear, as broad money supply does not have any significant impact on human development in SAARC region. The coefficient of real GDP per capita in both estimators, have a negative impact on human development, however, the intensity of both estimators are different in nature, as real GDP per capita decrease human development in FMOLS (i.e., \(-\)0.828 %) and in DOLS estimators (i.e., 0.458 %). The results indicate that due to a low quality of human capital in SAARC region; the direct effect of economic growth becomes negative; however, financial development indicators act as an important driver for increase in human capital in SAARC region. The implications of present research relate to heightening the need for labor market reforms and making the educational system more flexible.

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

Fig. 1
Fig. 2
Fig. 3

Similar content being viewed by others

References

  • Ahmad, Z., Khan, A,A., Tariq, A.: Stock market development and economic growth: a comparative study of Pakistan and Bangladesh. Afr. J. Bus. Manag. 6(8), 2985–2989 (2012)

    Google Scholar 

  • Armenta, M.W.: The financial sector and economic development: banking on the role of human capital (2007). http://www.princeton.edu/jpia/past-issues-1/2007/9.pdf. Accessed 5 Jan 2013

  • Asghar, N., Awan, A., Rehman, H.: Human capital and economic growth in Pakistan: a cointegration and causality analysis. Int. J. Econ. Finance 4(4), 135–147 (2012)

    Article  Google Scholar 

  • Becker, G.S.: Human Capital: A Theoretical Analysis with Special Reference to Education. Columbia University Press for NBER, New York (1964)

  • Choong, C.: Does domestic financial development enhance the linkages between foreign direct investment and economic growth? Empir. Econ. 42(3), 819–834 (2012)

    Article  Google Scholar 

  • Ederer, P., Schuller, P., Willms, S.: Human Capital Leading Indicators: How Europe’s Regions and Cities Can Drive Growth and Foster Social Inclusion. Lisbon Council Policy Brief, EU (2011)

  • Eng, Y., Habibullah, M.S.: Financial development and economic growth nexus: another look at the panel evidence from different geographical regions. Banks Bank Syst. 6(1), 62–71 (2011)

    Google Scholar 

  • Evans, A.D., Green, J,G., Muride, V.: Human capital and financial development in economic growth: new evidence using the translog production function. Int. J. Finance Econ. 7(1), 123–140 (2002)

    Article  Google Scholar 

  • GoP: Economic Survey of Pakistan (2011–2012), Finance Division. Economic Advisor’s Wing, Government of Pakistan, Islamabad (2012)

  • Greenwood, J., Sánchez, J.M., Wang, C.: Quantifying the impact of financial development on economic development. Rev. Econ. Dyn. 16(1), 194–215 (2013)

    Google Scholar 

  • Hakeem, M., Oluitan, O.: Financial development and human capital in South Africa: a time-series approach. Res. Appl. Econ. 4(3), 18–38 (2012)

    Article  Google Scholar 

  • Harris, L.: From financial development to economic growth and vice versa: a review of international experience and policy lessons for Africa. J. Afr. Econ. 21(1), 89–106 (2012)

    Article  Google Scholar 

  • Hofmann, D.M.: The Demographic Challenge for Economic Policy Makers: Labor Market Developments in a Framework of Sustainable Economic Growth and Financial Sector Development, pp. 293–310. Springer, Berlin (2012)

  • Hossain, A.: K-economy in the SAARC integration: a comparative study among the member countries. Compet. Rev. 22(1), 28–47 (2012)

    Google Scholar 

  • Human Development Report (2007–2008): United Nation Development Program. http://hdr.undp.org/en/reports/global/hdr2007-2008/

  • IFS (2012). International Financial Statistics 2012: International Monetary Fund, Washington. http://www.imfstatistics.org/imf. Accessed 30 Apr 2012

  • Im, K.S., Pesaran, M.H., Shin, Y.: Testing for unit roots in heterogeneous panels. J. Econom. 115, 53–74 (2003)

    Article  Google Scholar 

  • Izushi, H., Huggins, R.: Empirical analysis of human capital development and economic growth in European regions. Cedefop Reference Series, 54 (2004). http://www.cedefop.europa.eu/EN/Files/BgR3_Izushi.pdf. Accessed 6 Jan 2013

  • Jalil, A., Ma, Y.: Financial development and economic growth: time series evidence from Pakistan and China. J. Econ. Coop. 29(9), 29–68 (2008)

    Google Scholar 

  • Jalles, J.T.: Openness, regional trade agreements and growth: evidence from Asia. Asian Econ. J. 26(1), 63–85 (2012)

    Article  Google Scholar 

  • Kao, C., McCoskey, S.: A residual-based test of the null of cointegration in panel data. Econom. Rev. 17(1), 57–84 (1998)

    Article  Google Scholar 

  • Kao, C., Chiang, M.: On the estimation and inference of a cointegrated regression in panel data. Adv. Econom. 15, 179–222 (2000)

    Google Scholar 

  • Kendall, J.: Local financial development and growth. J. Bank. Finance 36(5), 1548–1562 (2012)

    Article  Google Scholar 

  • Khan, M.A., Qayyum, A.: Trade, financial and growth Nexus in Pakistan. Econ. Anal. Work. Pap. 6(14), 1–25 (2007)

    Google Scholar 

  • King, R.G., Levine, R.: Finance and growth. Q. J. Monet. Econ. 108(3), 717–737 (1993)

    Article  Google Scholar 

  • Levin, A., Lin, C.F.: Unit Root Tests in Panel Data: Asymptotic and Finite-Sample Properties. University of California, San Diego, Mimeo (1992)

  • Levin, A., Lin, C., Chu, C.J.: Unit root tests in panel data: asymptotic and finite sample properties. J. Econom. 108(1), 1–24 (2002)

    Article  Google Scholar 

  • Maddala, G., Wu, S.: A comparative study of unit root tests with panel data and a new simple test. Oxf. Bull. Econ. Stat. 61, 631–652 (1999)

    Article  Google Scholar 

  • Masoud, N., Hardaker, G.: The impact of financial development on economic growth: empirical analysis of emerging market countries. Stud. Econ. Finance 29(3), 148–173 (2012)

    Article  Google Scholar 

  • Mincer, J.: Labor mobility, wages, and job training. Unpublished paper. Columbia University (1984)

  • Murinde, V.: Financial development and economic growth: global and African evidence. J. Afr. Econ. 21(1), 10–56 (2012)

    Article  Google Scholar 

  • Outreville, J.F.: Financial Development, Human Capital and Political Stability. UNCTAD, Geneva (1999). http://unctad.org/en/docs/dp_142.en.pdf. Accessed 15 July 2012

  • Pedroni, P.: Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxf. Bull. Econ. Stat. 61, 653–670 (1999).

    Google Scholar 

  • Pedroni, P.: Fully modified OLS for heterogeneous cointegrated panels. Adv. Econom. 15, 93–130 (2000)

    Article  Google Scholar 

  • Pedroni, P.: Panel cointegration: asymptotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis. Econom. Theory 20, 597–625 (2004)

    Google Scholar 

  • Phillips, P., Perron, P.: Testing for a unit root in time series regression. Biometrica 75(3), 335–346 (1988)

    Article  Google Scholar 

  • Pradhan, R.P.: Energy consumption-growth Nexus in SAARC countries: using cointegration and error correction model. Mod. Appl. Sci. 4(4), 74–90 (2010)

    Article  Google Scholar 

  • Ranis, G.: Human Development and Economic Growth. Center Discussion Paper No. 887 (2004). http://www.econ.yale.edu/growth_pdf/cdp887.pdf. Accessed 12 Oct 2011

  • Sahoo, P., Dash, R.K.: Economic growth in South Asia: role of infrastructure. J. Int. Trade Econ. Dev. 21(2), 217–252 (2012)

    Article  Google Scholar 

  • Sawhney, U.: Growth and structural change in SAARC economies. Int. J. Econ. Finance Stud. 2(2), 95–103 (2010)

    Google Scholar 

  • SBP: Chapter 10: Macroeconomic and Financial Sector Comparison with SAARC and ASEAN Countries. State Bank of Pakistan, Karachi (2004). http://www.sbp.org.pk/publications/FSA-2004/Chapter_10.pdf. Accessed on 15 Dec 2012

  • Schumpeter, J.A.: The Theory of Economic Development, trans. 1934. Harvard University Press, Cambridge (1912)

  • Sharpe, A.: The development of indicators for human capital sustainability. Centre for the Study of Living Standards, Ottawa (2001)

    Google Scholar 

  • SHRDC: SAARC Human Resource Development Centre, 2008. Database Profile on Macroeconomic and HRD Indicators in the SAARC Region (1990–2006) (2008). http://www.shrdc-isb.org.pk. Accessed 2 May 2011

  • Singh, A.: Financial globalization and human development. J. Hum. Dev. Capab. 13(1), 135–151 (2012)

    Article  Google Scholar 

  • Stock, J., Watson, M.W.: A simple estimator of cointegrating vectors in higher order integrated systems. Econometrica 61(4), 783–820 (1993)

    Article  Google Scholar 

  • UNDP: Human Development Report 2007–2008. UNDP, Washington (2008)

  • World Bank: World Development Indicators 2012. World Bank Washington (2012)

  • Zaman, K., Izhar, Z., Khan, M,M.: The relationship between financial indicators and human development in Pakistan. Econ. Model. 5, 1515–1523 (2012)

    Article  Google Scholar 

  • Zaman, K., Shah, I., Khan, M,M.: Macroeconomic factors determining FDI impact on Pakistan’s growth. South Asian J. Glob. Bus. Res. (SAJGBR) 1(1), 79–95 (2012)

    Article  Google Scholar 

Download references

Acknowledgments

This work was financially supported by the National 985 Project of Non-traditional Security at Huazhong University of Science and Technology, P. R. China. Authors are thankful to the anonymous reviewers for their comments and suggestions. Any remaining errors are the authors own responsibility.

Author information

Authors and Affiliations

  1. College of Public Administration, Huazhong University of Science and Technology (HUST), 1037 Luoyu Road, Wuhan, People’s Republic of China

    Ghulam Akhmat & Tan Shukui

  2. Department of Management Sciences, COMSATS Institute of Information Technology, Abbottabad, Pakistan

    Khalid Zaman

Authors
  1. Ghulam Akhmat
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Khalid Zaman
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Tan Shukui
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Tan Shukui.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Akhmat, G., Zaman, K. & Shukui, T. Impact of financial development on SAARC’S human development. Qual Quant 48, 2801–2816 (2014). https://doi.org/10.1007/s11135-013-9926-1

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11135-013-9926-1

Keywords

Search

Navigation