Does Financial Development Exert a Time-Varying Impact on Human Development?

Elena-Alexandra Sinoi ()
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Elena-Alexandra Sinoi: West University of Timisoara, Faculty of Economics and Business Administration

A chapter in Leading Change in Disruptive Times, 2026, pp 569-591 from Springer

Abstract: Abstract Human capital building is one of the most topical subjects in modern society, being a tool for ensuring sustainable development. Since human development is a complex and multidimensional process, it is of utter relevance for all states to thoroughly identify the factors that are likely to foster or hinder it. In this context, a widely acknowledged factor that can enhance human capital is the development of the financial system. Accordingly, this research aims to address the topic of financial development and human capital development through two distinct approaches. First, based on the keywords ‘financial development’ AND ‘human’, we conduct a brief bibliometric assessment on a dataset of 108 academic papers retrieved from the Web of Science platform between January 2000 and January 2025. The outcomes reveal that, over the past few years, there has been an increasing awareness that the financial system’s development is a relevant factor in shaping human capital and vice versa. Second, we empirically evaluate the influence of the Financial Development Index (variable of interest), Global Freedom, and Gross Fixed Capital Formation (control variables) on the Human Development Index (dependent variable), for a sample of 168 states worldwide from 1990 to 2021. For each year, we calculate the mean values separately for all variables, resulting in a time-series data frame. Subsequently, we apply the Time-Varying Parameter [TVP] model with five different shrinkage priors and stochastic volatility specification on errors. Our findings extend the current scientific knowledge by revealing that, depending on a range of endogenous and exogenous factors operating within a country, financial development positively influences human capital, with this effect exhibiting variability in time. These results are robust to different TVP model specifications.

Keywords: Human Development; Financial Development; Time-Varying Parameter Model (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-032-19276-9_37

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DOI: 10.1007/978-3-032-19276-9_37

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