FINANCIAL INNOVATION, HUMAN CAPITAL DEVELOPMENT, AND ECONOMIC GROWTH OF SELECTED SOUTH ASIAN COUNTRIES

Abstract

This paper offers an elaborate empirical assessment related to nexus of financial innovation, human capital development and economic growth focusing on selected economies of South Asia during 1991 to 2022. Anchored in the endogenous growth literature, the current study incorporates the theoretical insights of Romer (1986, 1990) and Lucas (1988) in the quest to analyze the interplay between innovative financial systems and human capital accumulation in promoting productivity and hence, long-run growth. Using stable panel data for Bangladesh, India, Pakistan, Sri Lanka, Nepal, and Bhutan, the exploration reflects dynamics within and crosswise countries by using fixed and random effects estimators. Key control variables such as trade openness, gross capital formation, technological innovation and labor force participation are included so that the model is robust. The empirical findings show that both financial innovation and human capital have positive and statistically significant impacts on economic growth as predicted by theories of endogenous growth models. Moreover, the results imply the existence of complementarities between financial development and human capital formations are important in sustaining innovation-led growth in the emerging south Asian economies. The research also concludes that a combination policy framework to promote financial modernization coupled with human capital investments is critical to generating inclusive and sustainable economic expansion in the region.