The Impact of Physical and Human Capital Development on Economic Growth in Developing and Developed Countries: A Comparative Panel Data Approach

This research used panel data of 74 developing and 47 developed countries over the period of seven years (2005 -2011) to investigate and compare the impacts of physical and human capital development on economic growth in these two regions. The results from fixed effects method employed revealed that physical capital such as investment proxy by gross fixed capital formation is not positively and significantly contributing to economic growth in developing regions until investment from other sources such as FDI and other growth determinants were taken into account. The reverse is the case for developed countries with this had positive and significant effect on GDP in almost all the model specifications. Infrastructure and innovation technology prove positive and significant in developing countries while they were not significant in developed countries which may be due to catching up effect through technology externalities and knowledge spillover. Human capital contributes to GDP in developed region through investment flow in primary and tertiary education. However, the result further showed that developing countries have neglected basic primary and secondary education with focus on tertiary education which may lack quality to contribute to GDP due to poor foundation as a result of poor attention to primary and secondary education.