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Human Capital and Financial Development in Economic Growth: New Evidence Using the Translog Production Function

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  • Evans, Alun Dwyfor
  • Green, Christopher J
  • Murinde, Victor

Abstract

In this paper we evaluate the contributions of human capital and financial development to economic growth in a panel of 82 countries covering 21 years. The main innovations in the paper stem from the fact that we use a translog production function as a framework for estimating the relationships among economic growth and factor inputs. The factor inputs considered are: labour, physical capital, human capital (deriving from endogenous growth theory), and a monetary factor (money or credit, deriving from the theory of money in the production function). The translog production function enables a richer specification of the relationships among growth and factor inputs, than the more commonly used Cobb-Douglas approach, as it allows for interactions among factor inputs. We find significant evidence of such interactions, suggesting that studies which ignore such interactions are likely to be misleading. Overall, our results suggest that financial development is at least as important as human capital in the growth process. Copyright @ 2002 by John Wiley & Sons, Ltd. All rights reserved.

Suggested Citation

  • Evans, Alun Dwyfor & Green, Christopher J & Murinde, Victor, 2002. "Human Capital and Financial Development in Economic Growth: New Evidence Using the Translog Production Function," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 7(2), pages 123-140, April.
  • Handle: RePEc:ijf:ijfiec:v:7:y:2002:i:2:p:123-40
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    Cited by:

    1. Kim, Nam-Seok & Heshmati, Almas, 2017. "The Relationship between Economic Growth and Democracy: Alternative Representations of Technological Change," GLO Discussion Paper Series 85, Global Labor Organization (GLO).
    2. Henryk Gurgul & £ukasz Lach, 2012. "Financial Development and Economic Growth in Poland in Transition: Causality Analysis," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(4), pages 347-367, August.
    3. Evan Osborne, 2003. "The Sources of Growth at Different Levels of Development," ISER Discussion Paper 0598, Institute of Social and Economic Research, Osaka University.
    4. Andrew van Hulten & Michael Webber, 2010. "Do developing countries need 'good' institutions and policies and deep financial markets to benefit from capital account liberalization?," Journal of Economic Geography, Oxford University Press, vol. 10(2), pages 283-319, March.
    5. Carton, Christine & Ronquillo, Cely, 2008. "Determinantes del crecimiento en America Latina: Analisis empirico de los sistemas bancarios
      [Economic growth determinants in Latin American region: An empirical analysis based on bank systems role
      ," MPRA Paper 10832, University Library of Munich, Germany.
    6. Oasis Kodila-Tedika & Simplice Asongu, 2015. "The Effect of Intelligence on Financial Development: A Cross-Country Comparison," Working Papers 15/002, African Governance and Development Institute..
    7. Wahab, Mahmoud, 2011. "Asymmetric output growth effects of government spending: Cross-sectional and panel data evidence," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 574-590, October.
    8. Eller, Markus & Haiss, Peter & Steiner, Katharina, 2006. "Foreign direct investment in the financial sector and economic growth in Central and Eastern Europe: The crucial role of the efficiency channel," Emerging Markets Review, Elsevier, vol. 7(4), pages 300-319, December.
    9. Pierre-Richard Agénor, 2004. "Does globalization hurt the poor?," International Economics and Economic Policy, Springer, vol. 1(1), pages 21-51, March.
    10. repec:sos:sosjrn:170301 is not listed on IDEAS
    11. Stijn Claessens & Erik Feijen, 2006. "Financial Sector Development and the Millennium Development Goals," World Bank Publications, The World Bank, number 7145.
    12. Dongyeol Lee & Hyunjoon Lim, 2014. "Nonlinearity in Nexus between Working Hours and Productivity," Working Papers 2014-24, Economic Research Institute, Bank of Korea.
    13. Jordan Shan & Jianhong Qi, 2006. "Does Financial Development 'Lead' Economic Growth? The Case of China," Annals of Economics and Finance, Society for AEF, vol. 7(1), pages 197-216, May.
    14. repec:sos:sosjrn:170302 is not listed on IDEAS
    15. Ghulam Akhmat & Khalid Zaman & Tan Shukui, 2014. "Impact of financial development on SAARC’S human development," Quality & Quantity: International Journal of Methodology, Springer, vol. 48(5), pages 2801-2816, September.
    16. Akinci, Gönül Yüce & Akinci, Merter & Yilmaz, Ömer, 2014. "Financial Development-Economic Growth Nexus : A Panel Data Analysis Upon Oecd Countries," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 55(1), pages 33-50, June.
    17. repec:eee:touman:v:65:y:2018:i:c:p:212-223 is not listed on IDEAS

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