The asymmetric effect of financial development on human capital: Evidence from a nonlinear ARDL approach

Abstract

Human capital accumulation and financial development are two vital determinants of economic growth. Recently, human development has been increasingly seen as the ultimate goal of development, rather than economic growth, because it primarily affects future well-being. Financial development is expected to have a positive impact on human development. However, the conclusions of previous studies are inconsistent. In this work, we use a nonlinear autoregressive distributed lag method and asymmetric causality analysis to probe the potential asymmetric effect of financial development and economic growth on the human capital index per capita in Vietnam from 1992 to 2017. The outcome obtained shows that the influence of financial development and economic growth is strong and positive on human capital. The empirical results also indicate that the impact of financial development is symmetric in the short run but asymmetric in the long run. Asymmetric Granger causality from the positive changes in financial development to human capital is found. Based on the empirical results, several policy implications are suggested for emerging countries, including Vietnam.

KEYWORDS:

• Asymmetric causality
• Asymmetric effect
• Economic growth
• Financial development
• Human capital
• Vietnam

JEL Classifications:

• E51
• F43
• O11
• O23
• O42

Acknowledgments

We thank anonymous reviewers and Editor-in-chief for helpful comments and suggestions. All errors are ours.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Author contributions

Methodology, Discussion, Conclusion, and Policy Implication, Nguyen Minh Ha; Introduction, Literature review, Empirical results, Bui Hoang Ngoc.

Additional information

Funding

This work is funded by the Vietnam Ministry of Education and Training under Grant No. KX-17.