Assessing the Causal Link Between Human Capital and GDP in Southern European Countries

Purpose: The purpose of this study is to empirically evaluate if there is a causal relationship between human capital and GDP in four southern European countries—Portugal, Italy, Greece, and Spain—that have been severely affected by the 2008 financial crisis. Design/methodology/approach: The analysis begins by analyzing the order of integration of the time series under examination to determine the optimal method for determining the presence of causal links. Given that the order of integration varies by country, the Toda-Yamamoto (1995) approach was used. Annual data were employed for the human capital index and real GDP. Findings: The empirical analysis results indicate that the relationship between economic growth and human capital varies substantially among countries. Specifically, no causal relationship was identified in Portugal and Spain, whereas a causal relationship is observed only from GDP to human capital in Italy. In Greece, human capital appears to Granger cause economic growth. Research limitations/implications: The observed differences in causal linkages may reflect the economic structures, education systems, and policies in each country. Originality/value: The study contributes to the existing literature by demonstrating that each country's economic and political factors have a unique impact on human capital effectiveness.