Human Capital Formation and Economic Growth Nexus in Third World Countries: A Dynamic Panel Data Analysis of Educational Enrolment, GDP, NNP, and Per Capita Income (1990–2025)

Abstract

This study investigates the relationship between human capital formation and economic growth in selected Third World countries—India, Bangladesh, Sri Lanka, Nepal, and the Philippines—over the period 1990–2025. Human capital formation is proxied by primary, secondary, and tertiary educational enrolment, while economic growth is measured through Gross Domestic Product (GDP), National Net Product (NNP), and per capita income (PCI). Employing a dynamic panel data approach, including the Generalized Method of Moments (GMM), Panel Vector Autoregression (PVAR), and Granger causality tests, the study examines the long-term interrelationships and causal linkages among these key variables. The findings reveal a statistically significant positive relationship between tertiary educational enrolment and GDP growth, indicating that higher education plays a pivotal role in promoting economic expansion. Secondary education exerts a moderate positive effect on NNP, whereas primary enrolment shows a relatively weaker influence. Higher per capita income is associated with increased educational enrolment, highlighting a mutually reinforcing cycle between income and human capital. Dynamic causality analysis further demonstrates bidirectional interactions among GDP, NNP, enrolment rates, and PCI, emphasizing the need for integrated policy interventions. The study concludes that investments in human capital, particularly at the tertiary level, are critical for sustainable economic growth in developing economies. Policy implications include enhancing access to higher education, improving educational quality, and aligning skill development initiatives with national economic priorities. By providing empirical evidence from a 35-year panel analysis of South and Southeast Asian countries, this research contributes to the literature on the education-growth nexus and offers insights for policymakers, educators, and development practitioners.