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Quality & Quantity

, Volume 48, Issue 5, pp 2801–2816 | Cite as

Impact of financial development on SAARC’S human development

  • Ghulam Akhmat
  • Khalid Zaman
  • Tan Shukui
Article

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.

Keywords

Financial development Economic growth Human development  Panel cointegration SAARC countries 

Notes

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.

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Copyright information

© Springer Science+Business Media Dordrecht 2013

Authors and Affiliations

  1. 1.College of Public AdministrationHuazhong University of Science and Technology (HUST)WuhanPeople’s Republic of China
  2. 2.Department of Management SciencesCOMSATS Institute of Information TechnologyAbbottabadPakistan

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