An analysis of the relationship between human development and economic growth

Abstract

As one expects, human development and economic growth are positively related, however, this relationship will vary in terms of magnitude at different levels of human development. This dissertation investigates the relationship, in both directions, between human development, as measured by the Human Development Index, and economic growth, as measured by the gross domestic product per capita, across a sample of 100 countries via Panel Data Analysis. The overall sample of countries is further analysed at four stages of human development, these being very high, high, medium and low human development, categorised according to the Human Development Index ranking. The purpose of this study was achieved through an econometric analysis by first using the Pooled Ordinary Least Squares method and afterwards via the Fixed Effects method which ensures the validity of the results. The period under study is of twenty years, ranging from 1999 to 2019. Results confirmed the anticipated two-way positive relationship between human development and economic growth. The relationship going from economic growth to human development is weak, while the relationship going from human development to economic growth is strong. When looking at the sub-categories of human development, economic growth has the strongest impact on human development when the level of human development within a country is the lowest. On the other hand, the effect of human development on economic growth gets stronger the higher the level of human development in a country. Policy implications for stakeholders are derived from these results in the final part of the dissertation.