Social Spending, Human Capital, and Growth in Developing Countries

SummaryUsing panel data from 118 developing countries in 1971–2000, this paper explores the channels linking social spending, human capital, and growth and compares the effects of alternative economic policy interventions. With separate modeling for education and health capital, explicit control for governance, and incorporation of nonlinearity, the paper finds that both education and health spending have a positive and significant impact on education and health capital, and thus support higher growth. Also, other policy interventions, such as improving governance and taming inflation, can achieve similar results. Hence, higher spending alone is likely insufficient to achieve the Millennium Development Goals.