Does Demographic Transition with Human Capital Dynamics Matter for Economic Growth? A Dynamic Panel Data Approach to GMM

Abstract

This study seeks to empirically investigate whether demographic transition with dynamics of human capital matters for economic growth for a representative sample of developing world. The empirical analysis based on panel of 67 developing countries, using 5-year interval data over 1960–2014, has been done by employing dynamic panel System-Generalized Method of Moments (Sys-GMM) estimator. The empirical findings suggest that demographic transition and human capital, in accordance with the theory, matter for economic growth of developing economies. The economically active population and labor force participation rate have positive contribution in economic growth. Moreover, the inclusion of human capital in level-form makes economic growth more sensitive to changes in human capital. The lag term of human capital yields insightful findings that higher the accumulation of human capital in previous time period, higher will be the economic growth in the current time period. However, the pre-requisite to achieve the benefits of this demographic transition in developing world is flexible labor markets capable to absorb the youth entering the working-age population. For market flexibility, sustained investment in human capital is required.

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Fig. 1

Notes

  1. 1.

    Crude Death Rate describes the number of deaths occurring during a year, per 1000 population and Crude Birth Rate describes the number of live births occurring during a year, per 1000 population. Crude Death Rate minus Crude Birth Rate results into rate of change in population in the absence of migration.

  2. 2.

    Average number of children per woman at which a population replaces itself, it is usually 2.1 births per woman.

  3. 3.

    The literature suggests that monetary, fiscal and trade policies affect Total Factor Productivity but they are not focus of the current study.

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Correspondence to Rana Ejaz Ali Khan.

Appendix

Appendix

Sample of developing countries
1. Algeria 18. Ecuador 35. Dominican Republic 52. Philippines
2. Argentina 19. El Salvador 36. Lesotho 53. Rwanda
3. Bangladesh 20. Fiji 37. Liberia 54. Senegal
4. Benin 21. Gabon 38. Malawi 55. South Africa
5. Belize 22. Gambia, The 39. Malaysia 56. Sri Lanka
6. Bolivia 23. Ghana 40. Mali 57. Sudan
7. Botswana 24. Guatemala 41. Mauritania 58. Swaziland
8. Brazil 24. Guyana 42. Mauritius 59. Syrian Arab Republic
9. Burundi 26. Haiti 43. Mexico 60. Togo
10. Cameroon 27. Honduras 44. Nepal 61. Thailand
11. Central African Republic 28. India 45. Nicaragua 62. Tunisia
12. Chile 29. Indonesia 46. Niger 63. Turkey
13. China 30. Iran, Islamic Rep. 47. Pakistan 64. Uruguay
14. Colombia 31. Iraq 48. Panama 65. Venezuela
15. Costa Rica 32. Jamaica 49. Papua New Guinea 66. Zambia
16. Cote d’Ivoire 33. Kenya 50. Paraguay 67. Zimbabwe
17. Cuba 34. Latvia 51. Peru  

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Ahmad, M., Khan, R.E.A. Does Demographic Transition with Human Capital Dynamics Matter for Economic Growth? A Dynamic Panel Data Approach to GMM. Soc Indic Res 142, 753–772 (2019). https://doi.org/10.1007/s11205-018-1928-x

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Keywords

  • Demographic transition
  • Human capital
  • System generalized method of moments estimator
  • Economic growth
  • Dynamic panel