Degree Name

Master of Arts (MA)

Semester of Degree Completion

2016

Thesis Director

Mukti P. Upadhyay

Abstract

Taking a panel of 66 countries and employing panel data methodology, this study examines the impact of financial development, human capital and their interaction on economic growth. This study covers a period of 40 years from 1971 to 2010. To smooth out the short-run fluctuations in the data for my growth study, I take 5-year non-overlapping averages of variables. As a proxy for financial development, I use private credit by deposit money banks or liquid liabilities, as a percent of GDP. In turn, human capital is represented by the percentage of population above 25 years of age with the secondary level of education. Using conditioning information and interaction terms, this study finds that financial development, as measured by credit to the private sector, and human capital are positively significant in explaining growth whereas another measure of financial development, liquid liabilities, is not significant in explaining growth. Moreover, the interaction term is not significant in explaining growth. When I introduce income dummies and region dummies, the results remain robust. The rate of convergence and the degree of impact do vary across countries at different income levels and in different regions. Another interesting result for my sample of countries is that human capital has a positive significant impact on growth of countries that had a lower initial level of human capital but not significant in countries that started out with a higher level of human capital.

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