Human Capital Components and Economic Development: The Relationship between Education and Health Expenditures and GDP in Selected Countries of Southeast Europe

The modern theory of economic growth and development posits that human capital is one of the main drivers of economic growth, as it enhances the productivity of the two classical growth factors i.e. physical capital and labour. Moreover, investments in human capital accumulation are considered an important precondition for achieving higher levels of economic development. In this context, one line of empirical research focuses on assessing the importance of the two key components of human capital—education and health—in the process of economic development. This paper investigates the impact of education and health on the level of economic development, measured by GDP per capita, in a sample of five Southeast European countries (Albania, Croatia, North Macedonia, Serbia, and Slovenia) over the period 2000–2021. The empirical analysis relies on cross-sectional regression using two panels, i.e. one for education-based human capital and the other for health-based human capital. Additional variables in the models include lagged GDP per capita, gross fixed capital formation per capita, and the Corruption Perceptions Index as a proxy for institutional quality. The results from both panel regressions indicate that spending on education and health has a significant positive effect on GDP per capita. These findings support the policy recommendation that public investment in education and health, aimed at improving the quality of human capital, may significantly contribute to the process of economic development.