ФЕДЕРАЛЬНОЕ ГОСУДАРСТВЕННОЕ АВТОНОМНОЕ

ОБРАЗОВАТЕЛЬНОЕ УЧРЕЖДЕНИЕ
ВЫСШЕГО ОБРАЗОВАНИЯ
"НАЦИОНАЛЬНЫЙ ИССЛЕДОВАТЕЛЬСКИЙ УНИВЕРСИТЕТ
"ВЫСШАЯ ШКОЛА ЭКОНОМИКИ"
Международный институт экономики и финансов

Юлусов Марк Вадимович

ВЛИЯНИЕ ЧЕЛОВЕЧЕСКОГО КАПИТАЛА
НА ЭКОНОМИЧЕСКИЙ РОСТ
(EFFECT OF HUMAN CAPITAL
ON ECONOMIC GROWTH)
Выпускная квалификационная работа –
БАКАЛАВРСКАЯ РАБОТА
по направлению подготовки 38.03.01 "Экономика"
образовательная программа "Программа двух дипломов по экономике
НИУ ВШЭ и Лондонского университета"

Рецензент Научный руководитель

PhD, доцент доктор экономических наук, профессор
Э. Катонини А. А. Фридман

Москва 2019

1
Contents
1 Introduction 4

2 Method of Research 6
2.1 Econometric Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Description of Regressors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

3 Results 13

4 Conclusion 19

2
 Abstract

The effect of human capital and structural change on economic growth is studied
in this work. In addition, an indirect effect of human capital through structural
change on economic growth is also examined. Two samples are used in order to
test the hypothesis: sample 1 consists of 20 countries for 55 years, and sample 2
contains 38 countries for 25 years. A linear dynamic panel data model is used as
a primary procedure of estimation of regressions. The result of the study is, that
human capital has a positive significant impact on economic growth. Structural
change and interaction between human capital and structural change do not have a
robust effect on economic growth.
Keywords: economic growth, aggregate human capital, structural change

Abstract

В работе исследуется влияние человеческого капитала и структурных изме-

нений на экономический рост. Помимо прямых эффектов, также анализируются
и косвенные, то есть эффект человеческого капитала через структурные изме-
нения на экономический рост. Для тестирования гипотезы использовалось две
выборки. Первая включает в себя 20 стран за 1960–2014, в то время как вто-
рая – 38 стран за 1990–2014. После этого, используя полученные данные, были
оценены коэффициенты с помощью метода линейной динамической модели. В
результате получилось, что человеческий капитал имеет положительный и зна-
чимый эффект на экономический рост. В то время как структурные изменения
и косвенный эффект не имеют устойчивых оценок.
Ключевые слова: экономический рост, совокупный человеческий капитал,
структурные изменения

3
1 Introduction
The effect of human capital on economic growth is studied in this work. The research
strategy chosen here is a replication of the paper written by Teixeira and Queirós (2016).
In the article, Teixeira and Queirós (2016) determine the direct effect of human capital
and also the indirect effect of the structure of the labour force on economic growth. They
hypothesize that on average the growth rate is higher for the country with a high level of
human capital and a large number of qualified workers in the labour force. Researchers
use Arellano and Bover; Blundell and Bond linear dynamic panel data model in order to
test their hypothesis on two samples of data. The first one includes countries with a large
number of time-series observations, while the second one incorporates data for the short
time interval.
Despite the fact that this is a replication study there are some differences from the
work of Teixeira and Queirós (2016). The first difference is, that more extended sample
of countries and years are included. Especially a lot of developing countries are added to
the sample. Secondly, in the original work authors violate the assumption required for
consistency of estimators. Therefore in this work, the error is corrected by implementing
the other estimation procedure.
The problem of the impact of human capital and structural change on economic growth
is important because it combines two different points of view. The first one is related to
the endogenous growth theory which assumes, that even a fixed level of human capital can
lead to the increase in the economic growth rate through development of new ideas and
technologies (Lucas 1988). The second one is related to the idea, that economic growth is
higher in a country with more technological intensive industries (Silva and Teixeira 2011).
There is an extensive literature on the topic of the impact of human capital on economic
growth. Most of the researchers in this subject assume, that there is a positive relationship
between these variables. However, there are some disagreements between authors about
the proxy variable, specification of the model, etc. Now the evidence from the literature
is going to be provided, that illustrates, that despite the existence of these problems there
is a positive relationship between human capital and economic growth.
The most common proxies1 for human capital are average years of schooling and scores
in international tests such as Programme for International Student Assessment (PISA) or
Trends in International Mathematics and Science Study (TIMSS). Using different proxy
variables researchers usually try to find the positive effect of human capital on economic
growth (Benhabib and Spiegel 1994; Hanushek and Kimko 2000; Hanushek 2016; Islam,
Ang, and Madsen 2014). Nonetheless, in recent works authors are confirmed, that quality-
adjusted measures of human capital provide a more significant result than average years of
schooling or school enrollment rates (Hanushek 2016; Delgado, Henderson, and Parmeter
2014).
1. Soboleva (2009) wrote an extensive literature review about different proxies used instead of human
capital.

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 In most cases, researchers usually test a parametric regression model nevertheless non-
parametric are also possible (Delgado, Henderson, and Parmeter 2014). The other way of
testing on model misspecification is to test the inclusion of omitted variables. For example
Sunde and Vischer (2015) test, whether the inclusion of differenced human capital besides
lagged human capital has an impact on economic growth. In both cases, authors find,
that correctly specified equation demonstrates the impact of human capital on economic
growth.
It goes without saying that not all authors find a positive effect of human capital on
economic growth. Moreover Benos and Zotou (2014) find out that in the literature there
is a publication bias toward the positive impact of human capital. However, it is assumed
here, that human capital has a positive effect on economic growth.
Structural change implies the process of transition of a country from low-skill and
low-tech industries to high-skill and high-tech. There are a lot of papers on the topic of
the impact of structural change on economic growth. In most cases, researchers try to
find the positive impact of the variable on the GDP as in the case with human capital.
Vu (2017), Dietrich (2012), and Silva and Teixeira (2011) present evidence that struc-
tural change has a positive impact on economic growth. However, as in any topic, it is not
always possible to find a robust effect. For example, Szirmai (2012) studies the emergence
of manufacturing industries in developed countries and cannot find the robust effect of
structural change on GDP.
There is also an indication that there is a reverse effect from the growth rate of the
economy to the structural change (Dietrich 2012). The author concludes, that in the very
short run growth rate decelerates structural change and in the short run accelerates it.
Thus structural change and economic growth have simultaneous effects on each other.
Thus based on the literature on these topics it is possible to hypothesize, that countries
with a high level of structural change and human capital should experience a higher growth
rate of GDP. Moreover, countries with a high level of structural change should have a high
level of human capital. Therefore in the empirical analysis, it is expected, that the sign of
the interaction variable between human capital and structural change should be positive.

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2 Method of Research
2.1 Econometric Model
In order to test hypotheses, the dynamic panel data model will be used. The dynamic
panel model in contrast to the static panel model contains the lagged values of the ex-
plained variable. In our case the model without intercept is represented in the following
way:
yit = φ1 yi(t−1) + xit β + wit γ + ci + uit t = 2, . . . , T ; i = 1, . . . , N (1)

where |φ1 | < 1 which is a condition for covariance stationarity in the first order autore-
gressive process, xit is a 1 × K1 vector of exogenous regressors, β ≡ (β1 , β2 , . . . , βK1 )0 is a
K1 × 1 vector, wit is a 1 × K2 vector of endogenous covariates, γ is a K2 × 1 vector, ci is
an unobserved component, and uit is an idiosyncratic error. Also, it is assumed, that un-
observed component and idiosyncratic error are independent, not identically distributed
and:

E(uit ) = E(ci ) = 0, Cov(uit , ui(t−τ ) ) = 0, E(uit |xit , ci ) = E(uit ), Cov(yi1 , uit ) = 0

for i = 1, . . . , N ; t = 2, . . . , T and τ ≥ 1 is a displacement.

Specifically, the following econometric model is tested:

log yit = φ1 log(yi(t−1) )+β1 log(humcapit )+β2 strchangeit +β3 (log(humcap)·strchange)it

+ β4 investit + β5 govconsit + β6 gpopit + β7 log(polrightsit ) + β8 log(civlibit ) + ci + uit
(2)

where y is real gross domestic product (GDP) per capita; humcap is human capital mea-
sured as average years of schooling; strchange is structural change, that Teixeira and
Queirós (2016) define as "the share of high-tech and high knowledge-intensive industries
in total employment" (p. 1640); invest is investment to GDP ratio; govcons is a share
of government consumption in GDP; gpop is the growth rate of population; polrights and
civlib are political rights and civil liberties indexes.
In the model, human capital and structural change have an influence on the growth
rate of GDP, but it is possible, that there is an opposite effect from GDP to these variables.
This simultaneity between explanatory variables creates an endogeneity problem. Also,
the current specification violates the assumption about strict exogeneity, because the
dependent variable being also a regressor correlates with the idiosyncratic error. Therefore
standard estimation methods such as pooled OLS, dummy variable, and within groups
produce inconsistent estimators.
This problem was solved by Arellano and Bover (1995) and Blundell and Bond (1998),
which based their works on paper of Arellano and Bond (1991). Blundell and Bond (1998)
propose to use "an extended linear GMM [generalized method of moments] estimator that

6
uses lagged differences of yit as instruments for equations in levels, in addition to lagged
levels of yit as instruments for equation in first differences" (p. 116).
In this research Arellano and Bover; Blundell and Bond method of estimation is used.
Arellano and Bover; Blundell and Bond linear dynamic panel-data estimation can have
either one-step or two-step estimator, which differ by the way of obtaining the weight
matrix. However Blundell and Bond (1998) conduct Monte Carlo simulation and claim,
that t-tests based on two-step GMM estimators can be biased because "the asymptotic
standard errors for the two-step GMM estimators tend to underestimate the true dis-
persion of these estimators in finite samples" (p. 139). Roodman (2009a) asserts, that
this occurs due to a large number of instruments used. Anyway, Roodman (2009a) states
that the correction for the two-step standard errors is now available in many statistical
packages.
Also Arellano and Bover; Blundell and Bond linear dynamic panel-data estimation
assumes, that in order for estimators to be consistent, the number of cross-section units,
N, should be larger than the number of time-series units, T. If this is not valid, then "the
number of instruments in difference and system GMM tends to explode with T. If N is
small, the cluster-robust standard errors and the Arellano-Bond autocorrelation test may
be unreliable" (Roodman 2009b, p. 128). In this case Roodman (2009b) proposes to use
fixed-effects estimator.
One of our samples has N < T , thus following advice given by Roodman (2009b),
the model with the two-stage least squares (2SLS) fixed effects is estimated. In this case,
the lagged dependent variable is removed from the right-hand side of the equation. The
theoretical model is transformed to:

yit = xit β + wit γ + ci + uit t = 1, . . . , T ; i = 1, . . . , N

If there are K2 endogenous variables, then the number of instruments should be at least
K2 , in order to the model be identified. Assumptions about unobserved component and
idiosyncratic error remain the same as in equation 1.
Now the empirical model is represented in the following way:

log yit = β1 log(humcapit ) + β2 strchangeit + β3 (log(humcap) · strchange)it + β4 investit

+ β5 govconsit + β6 gpopit + β7 log(polrightsit ) + β8 log(civlibit ) + ci + uit (3)

Two endogenous variables are present in the model: human capital and structural change,
therefore, it is required at least two instruments. In this case, the first and second lag of
endogenous variables is used as instruments.

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2.2 Description of Regressors
The econometric specification is tested on two samples. The distribution of countries
between samples is based on data availability. The first one includes 20 countries from
the Organisation for Economic Co-operation and Development (OECD) for the period
from 1960 to 2014. The second sample consists of 38 OECD and non-OECD countries for
the period from 1990 to 2014. From these 38 countries, 20 comes from the first sample.
Table 1 presents a list of countries used in the research.

Table 1: Countries Used in the Research

20 OECD 18 non-OECD
Australia Greece Chile Latvia
Austria Ireland China Mexico
Belgium Italy Colombia Malta
Canada Japan Cyprus Norway
Germany South Korea Czech Republic Poland
Denmark Luxembourg Estonia Russia
Spain Netherlands Hungary Slovakia
Finland Portugal India Slovenia
France Sweden Iceland
United Kingdom United States of America Lithuania

Table 2: Description of Covariates

Variable Symbol Description Source
Expenditure-side
Real GDP
y real GDP per capita Penn World Table
per capita
at chained PPP in 2011 USD.
Human Average years of total schooling
humcap Barro and Lee
capital for population at the age 25+.
EU KLEMS
Structural Share of qualified workers
strchange WORLD KLEMS
change in total employment.
OECD.Stats
Share of gross capital formation
Investment invest Penn World Table
in GDP.
Government Share of government consumption
govcons Penn World Table
consumption in GDP.
Growth rate
gpop Growth rate of population. Penn World Table
of population
Political rights is measured
Political Freedom
polrights on 1 to 7 scale with 1 representing
rights House
the highest degree of freedom.
Civil liberties is measured
Civil Freedom
civlib on 1 to 7 scale with 1 representing
liberties House
the highest degree of freedom.

Table 2 presents the description of covariates. Data about the output is obtained from
the Penn World Table database version 9.1 (Feenstra, Inklaar, and Timmer 2015). In this

8
dataset, there are a lot of variables that measure GDP, and among them, expenditure-
side real GDP at chained PPP in million 2011 USD is chosen as a proxy for output.
Data about population comes from the same dataset and is also used for calculation of
real GDP per capita. Shares of gross capital formation and government consumption at
current PPPs also come from the Penn World Table.
The average years of total schooling are used as a proxy for human capital. Educational
attainment data are obtained from Barro and Lee (2013) dataset for total population at
the age of 25 years and older.
Data about structural change comes from EU KLEMS Growth and Productivity Ac-
counts (O’Mahony and Timmer 2009) and WORLD KLEMS datasets. The dataset con-
tains information about the number of employees occupied in different industries according
to the International Standard Industrial Classification of All Economic Activities. This
is needed in order to get information about the share of employed in high-tech or high
knowledge-intensive industries. Peneder (2007) classifies financial intermediation, com-
puters and related activities, research & development, and education as high educational
intensive industries (pp. 198–199). Unfortunately EU KLEMS does not provide data
for all countries in the sample especially for Iceland, Norway, Russia, and Mexico. Data
about these countries is obtained from OECD.Stats database (OECD 2018).
Data about political rights and civil liberties is provided by Freedom House (2019).
Indexes have a scale from one to seven where one indicates the greatest degree of freedom.
The score is determined by the group of international experts.
However, there are two problems with this data. The first one is, that Barro and Lee
(2013) dataset contains information about the average years of schooling aggregated in
five years. The problem is solved by assuming, that during these five years the value
of average years of schooling remains the same and after that interpolating the value on
missing years. The second problem is, that O’Mahony and Timmer (2009) and Freedom
House (2019) do not provide data for the entire range but only 1970–2007 and 1972–2018
respectively. Time gaps 1960–1972 and 2007–2014 are filled as suggested by Teixeira and
Queirós (2016). For this, it is assumed, that the average growth rate of the variable in the
missing period of length t is equal to the average growth rate in the subsequent/previous
period2 of length t. After that, the growth rate is used in order to estimate values in the
missing period.
Tables 3 and 4 report correlation matrixes between variables in samples 1 and 2. From
these tables it can be clearly seen, that most of coefficients have weak3 correlation however
there are some exceptions.
Table 3 shows, that human capital and structural change have a positive and moderate
correlation with real GDP per capita. Also, political rights and civil liberties indexes
have a negative relationship with GDP per capita what is the desired effect, because an
2. This depends whether the missing period is at the beginning or at the end of the time interval.
3. If r is defined as Pearson’s sample correlation coefficient then weak correlation is |r| < 0.5; moderate
is 0.5 ≤ |r| < 0.8, and the rest is strong correlation.

9
increase in the index, or in other words a decrease in political rights and civil liberties
lead to a decrease in GDP per capita. Besides human capital and structural change has
a correlation of 0.6446 which means, that they are linearly related, and this confirms our
hypothesis. If correlation coefficients are compared in tables 3 and 4 then it is possible
to see, that structural change has a weak correlation with GDP per capita and human
capital.

10
 Table 3: Correlation Between Variables in Sample 1
log(y) log(humcap) strchange invest govcons gpop log(polrights) log(civlib)
log(y) 1.0000
log(humcap) 0.7611 1.0000
strchange 0.6409 0.6446 1.0000

11
invest −0.0531 −0.0634 −0.2160 1.0000
govcons 0.1692 −0.2037 −0.0194 −0.2037 1.0000
gpop −0.2058 −0.0322 0.2057 0.1386 −0.3917 1.0000
log(polrights) −0.6469 −0.5597 −0.4258 0.1737 −0.3058 0.2678 1.0000
log(civlib) −0.5824 −0.5243 −0.4413 0.1027 −0.2650 0.0968 0.7296 1.0000
 Table 4: Correlation Between Variables in Sample 2
log(y) log(humcap) strchange invest govcons gpop log(polrights) log(civlib)
log(y) 1.0000
log(humcap) 0.7099 1.0000
strchange 0.2522 0.2365 1.0000

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invest 0.2587 0.0017 −0.1411 1.0000
govcons −0.2349 0.2129 −0.2060 −0.4169 1.0000
gpop 0.0208 −0.2973 0.3174 0.2964 −0.6325 1.0000
log(polrights) −0.6585 −0.4525 −0.0759 −0.1301 0.0900 0.0868 1.0000
log(civlib) −0.7206 −0.4960 −0.2020 −0.1852 0.1457 −0.0294 0.8172 1.0000
3 Results
After data is collected, it is possible to test the econometric specification 2. Variables
of the interest are human capital, structural change, and the interaction between them
which shows, that the effect of structural change depends on the level of human capital.
The estimation of econometric model 1 is conducted in Stata Statistical Software:
Release 13. The rest models are estimated in R: A Language and Environment for Statis-
tical Computing with the help of packages from Croissant and Millo (2008) and Fox and
Weisberg (2019).

Table 5: Sample 1
log(y) Coef. Std. Err. p-value
log(yt−1 ) 0.9817 0.0042 0.0000
log(humcap) 0.0293 0.0116 0.0110
strchange −0.8158 0.2456 0.0010
log(humcap) · strchange 0.2716 0.0989 0.0060
invset 0.2421 0.0253 0.0000
govcons −0.8262 0.0439 0.0000
gpop −1.8000 0.3060 0.0000
log(polrights) 0.0134 0.0054 0.0130
log(civlib) −0.0048 0.0050 0.3330
cons 0.2498 0.0399 0.0000
Sargan p-value 0.0000
Wald p-value 0.0000

Table 5 presents results for the first sample, which consists of 20 OECD countries for
the period from 1960 to 2014. The method of estimation is a one-step system GMM. The
first problem which is encountered is that |φ1 | ≥ 1, therefore, it is decided to include a
constant in order to make model stationary. The second problem is, that the p-value of the
Sargan J test remains 0 regardless of the number of instruments used. This means, that
there are too many instruments; the result provided is for the model with 282 instruments.
Also as it can be seen from table 5, the sign of strchange contradicts the expected result.
Coefficients for this variable is negative and highly significant. Additionally the hypothesis
is tested that H0 : β2 = 0 versus H1 : β2 > 0. The z statistic is −3.32 which means that
null hypothesis cannot be reject4 at 10% level. In addition, coefficient for log(civlib) is
insignificant; this may occur, because at most 25% of OECD countries had the value of
civil liberties index greater than 1. In other words variable is too homogenous. If a test
for joint significance is conducted H0 : β7 = β8 = 0 and H1 : β7 6= 0 ∪ β8 6= 0 ∪ β7 6= β8 6= 0
the test statistic is χ2 (2) = 6.66 and p-value=0.0358. This shows, that the null hypothesis
is not rejected at 1% level and coefficient are not jointly significant.
Table 5 also has two interesting features. The first one is, that semielasticity with
respect to govcons is −82.62. This means, that government expenditures only slows down
economic growth. The second one is, that semielasticity with respect to gpop is −180.
4. x(10) = 1.2816 where x(P ) is the percentage points of the standard normal distribution.

13
This may happen because the growth rate depends on newborn and deceased which are
not part of the labour force and thus cannot increase GDP. Therefore we propose to use
the growth rate of the labour force instead of the growth rate of population because it
accounts workable population.

Table 6: Sample 2
Robust
log(y) Coef. p-value
Std. Err.
log(yt−1 ) 0.9555 0.0176 0.0000
log(humcap) 0.1939 0.0838 0.0207
strchange 1.3591 0.7012 0.0529
log(humcap) · strchange −0.6104 0.3048 0.0452
invset 0.2688 0.1132 0.0176
govcons −0.1602 0.1437 0.2651
gpop −0.1138 1.5025 0.9396
log(polrights) −0.0060 0.0111 0.5890
log(civlib) 0.0025 0.0117 0.8291
Hansen-Sargan p-value 1.0000
Arellano-Bond for AR(1) p-value 0.0017
Arellano-Bond for AR(2) p-value 0.0019
Wald p-value 0.0000

Note. Number of instruments 1047.

Table 6 presents results for the second sample of 38 OECD and non-OECD countries
for the period from 1990 to 2014. The method of estimation is two-steps GMM model. In
sample 2 we do not encounter any problems similar to the ones from the previous sample.
Coefficients for human capital and structural change are positive and significant thus
the expected result coincides with the hypotheses. In order to explain the coefficient
for interaction between human capital and structural change, the model with demeaned
log(humcap) and strchange is estimated. Results are presented in table 7. A capital letter
"D" before variable means, that the sample mean is subtracted from the variable. Thus
for the country with structural change equal to the sample mean: 1% increase in human
capital decreases GDP per capita by 2.09%. For the country with log(humcap) equal to
the sample mean: 1% increase in structural change increases GDP per capita by 16.82%.
Coefficients for the other control variables are insignificant with the exception of in-
vestments. We conduct a test for joint significance of coefficients for political rights and
civil liberties indexes as for the sample 1. The hypothesis is the same: H0 : β7 = β8 = 0
and H1 : β7 6= 0 ∪ β8 6= 0 ∪ β7 6= β8 6= 0. χ2 (2) = 2.457 and p-value=0.2927, therefore,
the null hypothesis about the insignificance of political rights and civil liberties indexes
cannot be rejected.
From the note for table 6 it is possible to see, that in this case, the model even with
the big number of instruments has the correct set of instruments. This is because the
p-value for Sargan’s J test is one. Also Arellano and Bond test for autocorrelation shows,

14
 Table 7: Sample 2 with Demeaned Coefficients
Robust
log(y) Coef. p-value
Std. Err.
log(yt−1 ) 0.9940 0.0047 0.0000
D. log(humcap) −0.0209 0.0461 0.6507
D.strchange 0.1682 0.2829 0.5520
D. log(humcap) · D.strchange 0.4309 0.7178 0.5483
invset 0.3599 0.1283 0.0050
govcons 0.0004 0.1315 0.9974
gpop −2.2180 1.4338 0.1219
log(polrights) −0.0094 0.0153 0.5407
log(civlib) 0.0115 0.0121 0.3413
Hansen-Sargan p-value 1.0000
Arellano-Bond for AR(1) p-value 0.0015
Arellano-Bond for AR(2) p-value 0.0021
Wald p-value 0.0000

that it is impossible to reject the null hypothesis about the absence of serial correlation
in the idiosyncratic error for lags one and two.
Table 8 presents the robustness check for sample 2. Number (1) is one-step Arellano
and Bover; Blundell and Bond system GMM; equation (2) shows two-step Arellano and
Bond difference GMM, and column (3) displays fixed effects 2SLS. Coefficients in the one-
step system GMM are similar by value and significance to the ones, that are in the table
6 that, shows two-step system GMM. Difference GMM and fixed effects 2SLS produce
estimates which results are very different from table 6. Therefore as significance and sign
of coefficients have changed markedly it is impossible to claim, that results are robust.
If results are compared from tables 5 and 6 then it is possible to see two interesting
features. The first one is, that human capital, structural change and the interaction
between them have the opposite signs. The second one is, that the coefficient for the
growth rate of population has changed the sign from negative to positive.
As it was stated earlier, sample 1 has more time series units than cross-section; this may
lead to a situation when estimators are inconsistent. Therefore regression 3 is estimated
by fixed effects 2SLS. Results are presented in table 9.
In general the sign of coefficients in table 9 coincides with the sign of coefficients in
table 5. Coefficients for the structural change and human capital have negative signs
which contradict our hypothesis, that human capital has a positive impact on economic
growth. Moreover human capital is insignificant in this case. Investment, government
consumption, and growth rate of the population are insignificant.
Civil liberties index remain insignificant, while political rights became significant at
1% level. Also unlike table 5 signs of coefficients are negative which means the less
political rights or civil liberties is associated with lower GDP per capita. For them, as
usual, a test for joint significance is conducted. The hypothesis is H0 : β7 = β8 = 0 and
H1 : β7 6= 0 ∪ β8 6= 0 ∪ β7 6= β8 6= 0 the test statistic is χ2 (2) = 10.353 and p-value=0.0056.

15
 Table 8: Robustness Check for Sample 2

Dependent variable:
log(y)
GMM-SYS GMM-DIF FE 2SLS
(1) (2) (3)
log(yt−1 ) 0.965∗∗∗ 0.853∗∗∗
(0.010) (0.045)

log(humcap) 0.147∗∗∗ 0.249 2.611∗∗∗

(0.047) (0.273) (0.791)

strchange 1.001∗∗ −0.363 16.494

(0.455) (4.633) (16.642)

log(humcap) · strchange −0.441∗∗ 0.308 −5.842

(0.196) (1.912) (6.910)

invest 0.266∗∗∗ 0.350∗ 0.612∗∗∗

(0.061) (0.185) (0.233)

govcons −0.126 −0.532∗ −1.480∗∗∗

(0.084) (0.297) (0.221)

gpop 0.066 −1.094 6.291∗∗∗

(0.727) (3.705) (2.085)

log(polrights) −0.009 −0.057∗∗ 0.059∗

(0.010) (0.023) (0.030)

log(civlib) 0.007 −0.020 −0.084∗∗∗

(0.009) (0.016) (0.032)

Observations 950 950 874

R2 0.712
Adjusted R2 0.696
Hansen-Sargan p-value 1.000 1.000
Arellano-Bond AR(1) p-value 0.002 0.002
Arellano-Bond AR(2) p-value 0.002 0.001
∗ ∗∗ ∗∗∗
Note: p<0.1; p<0.05; p<0.01

16
 Table 9: Sample 1 Fixed Effects 2SLS
Robust
log(y) Coef. p-value
Std. Err.
log(humcap) −1.0654 1.2592 0.3975
strchange −64.9791 35.2301 0.0651
log(humcap) · strchange 28.4934 14.4499 0.0486
invset 0.8263 0.7261 0.2551
govcons −1.3288 1.5523 0.3920
gpop −10.2964 7.7719 0.1852
log(polrights) −0.5804 0.2712 0.0324
log(civlib) −0.0287 0.1300 0.8255
2
R 0.6876
2
Radj 0.6795

Note. n = 20 and T = 53
χ2 (8) = 368.226 and p-value=0.

Thus the test result is significant at 0.1% level and the null hypothesis cannot be rejected.
Croissant and Millo (2008) suggest different tests after estimating panel model. One of
them is a test for cross-sectional dependence "which can arise, e.g., if individuals respond
to common shocks or if spacial diffusion process are present, relating individuals in a way
depending on a measure of distance" (p. 28). The presence of cross-section dependence
leads to inefficient estimators.
We are using Pesaran CD test which has H0 : no cross-sectional dependence and H1 :
cross-sectional dependence. The test statistic is N (0, 1) = 12.97 and p-value=0. Hence
the null hypothesis about no-cross sectional dependence is rejected. This result may
occur because the sample under analysis is not independent. In our case, this means that
standard errors and p-values are higher than should be.
Also Breusch-Godfrey test for serial correlation in idiosyncratic errors in panel data
models is conducted. H0 : ρ1 = · · · = ρ7 = 0 and H1 : ρi 6= 0, for some i ∈ {1, . . . , 7} where
ρl is lag-l autocorrelation. The choice of number of lags is arbitrary; we usually choose
√
T lags. The test statistic is χ2 (7) = 892.07 and p-value=0 thus the null hypothesis
about the absence of serial correlation in errors is rejected.
Table 10 presents a robustness check for sample 1. Results from table 9 also may be
considered as a check on robustness, but they are not duplicated in table 10. Number
(1) is a two-step Arellano and Bover; Blundell and Bond linear dynamic panel model
and equation (2) is a one-step Arellano and Bond difference GMM. Unfortunately, among
three methods of estimation, only two variables remain their significance and sign: share
of government consumption and lag of GDP per capita. Also, it can be noticed that
estimates from difference GMM are very similar by sign and significance to estimates
from table 5. Hence it is possible to conclude, that results are not robust.

17
 Table 10: Robustness Check for Sample 1
Dependent variable
log(y)
GMM-SYS GMM-DIF
(1) (2)
log(yt−1 ) 0.927*** 0.947***
(0.058) (0.009)
log(humcap) 0.114 0.051***
(0.140) (0.018)
strchange 1.781 −0.892**
(2.662) (0.388)
log(humcap) · strchange −0.259 0.480***
(1.194) (0.137)
invest −0.081 0.343***
(0.201) (0.036)
govcons −0.629*** −1.049***
(0.155) (0.059)
gpop 4.527 −1.824***
(5.664) (0.414)
log(polrights) −0.025 0.007
(0.058) (0.008)
log(civlib) 0.036 −0.019***
(0.444) (0.007)
Instruments 1100 165
Sargan p-value 1.000 0.000
Arellano-Bond AR(1) p-value 0.027 0.000
Arellano-Bond AR(2) p-value 0.003 0.000

Note. *p<0.1; **p<0.05; ***p<0.01

18
4 Conclusion
The goal of this paper is to test the hypothesis, that there is a positive effect of human
capital and structural change on economic growth. Also, an indirect effect of human
capital through structural change on economic growth is examined.
In order to test hypothesis two samples of countries are used. The first one includes
OECD countries for the period 1960–2014, while the second one consists of OECD and
non-OECD members for 1990–2014.
The primary method of estimation is Arellano and Bover; Blundell and Bond linear
dynamic panel data model. However, sample 1 violates one of the assumptions of this
method of estimation, therefore, fixed effects two-stage least squares are used to correct
this mistake.
Unfortunately, we could not get results that are always significant in both samples.
Nevertheless human capital has a positive effect on economic growth in both samples and
positive-significant in sample 2. Only when sample 1 is estimated with fixed effects 2SLS
the result is negative. This outcome is in line with the hypothesis and the other authors
such as Benhabib and Spiegel (1994), Bils and Klenow (2000), and Hanushek and Kimko
(2000).
Everything is not clear with the coefficient before the structural change. In a more
homogenous sample of countries for a large time span, it shows a negative sign while for
a heterogeneous sample for a short time span it shows the positive sign.
The indirect effect of human capital through structural change on economic growth has
a positive-significant result in sample 1 and unrobust in sample 2. In this case, unrobust
means that sigh and significance change very often. This evidence coincides with Teixeira
and Queirós (2016), that explain this figure due to different time intervals.
Thus it is possible to say, that only human capital has a robust positive-significant
effect on GDP per capita. The possible explanation for this result is, that in all countries
the average years of schooling has been increasing over the whole time span. GDP per
capita also has been growing or fluctuating around some level. This is why this effect is
observed in all regressions.
Among other control variables, it can be noticed, that share of investment and govern-
ment consumption in GDP have robust coefficients. Investments have a positive significant
effect on growth rate while government consumption is negative. The sign of coefficient
before government consumption contradicts the basic macroeconomic theory the potential
explanation for this is, that public spendings are spent inefficiently.

19
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