Economic growth, human capital and structural change: A dynamic panel data analysis

Human capital is identified as one of the main determinants of economic growth and plays an important role in the technological progress of countries. Nevertheless, existing studies have to some extent neglected the importance of human capital in the growth process via the interaction it can have with a country's industrial specialization. Additionally, the emphasis is mainly placed on supply-side determinants, while demand-side factors are neglected, particularly the relevance of the processes of structural change. Thus, using a growth model which integrates variables from both the supply side and demand side, we assess the direct and indirect effects of human capital on economic growth, including in the latter the interaction of human capital with the industrial specialization of countries. Based on dynamic panel data estimations, we found that human capital and the countries' productive specialization dynamics are crucial factors for economic growth. Moreover, the interaction between human capital and structural change in high knowledge-intensive industries impacts significantly on economic growth. However, the sign of this effect depends on the type of country and the period of analysis. Specifically, over a longer time span (1960-2011) and for more highly developed (OECD) countries, the impact of the interaction between human capital and structural change is positive. When we also include transition and Mediterranean countries over a shorter time period (1990-2011), we find that human capital significantly and positively impacts on the countries' economic growth but the effect of human capital via specialization in high-tech and knowledge-intensive activities is negative. The latter result indicates that the lack of industrial structures able to properly integrate highly educated individuals into the productive system leads countries to experience disappointing economic returns.