Human Capital Development and Inclusive Growth: Exploring the Role of Income through Heterogeneous Income Groups

Abstract

This study examines two things. First, the confirmation of achieving inclusive growth through human capital development i.e. government expenditures on education and health. Second, the existence of a threshold effect between government expenditures on human capital development and income level, for growth inclusiveness. This study uses secondary panel data of 125 countries for the period of 20 years from 2000-2019 obtained from World Development Indicators (WDI) of the World Bank. The countries are grouped into four categories based on World Bank classification of countries according to their income levels, namely, low-income, lower-middle income, uppermiddle-income, and high-income. The outcomes of this study reveal that human capital development has increasing effects on inclusive growth across all income levels. Therefore, there is a need to enhance human capital development to achieve the target of inclusive growth regardless of the income level of the economy. The empirical results show the existence of a statistically significant threshold effect between government expenditure on human capital development and income level for growth inclusiveness. Low-income and lower-middle-income countries need to raise the national income level to ensure achieving the growth through government’s investment on human capital development.