The Role of Government Expenditure, Economic Growth, and Investment in Explaining Human Development Index

Human Development Index is designed to capture the multidimensional aspects of the development process which includes human health and mind along with per capita availability of goods and services. While the availability of resources is essential for investment in education and health to enhance human development, a fundamental dilemma persists in capitalist societies regarding who will invest in human capital. This raises important questions regarding whether human capital accumulation is self-reinforcing, to what extent economic growth can generate adequate resources for investment in human development, and what role the state should play in this process. These issues merit careful examination, particularly in the context of growing privatization. We have analyzed the empirical relationship between HDI, economic growth, investments and government expenditures in a panel framework of 61 countries from developed and developing blocs over the period 1991–2020. Controlling for other factors, we find government expenditures and investments to be univocally effective in raising the HDI values. Depending upon the nature of the chosen model for the purpose, viz Fixed effect model and Difference GMM model, we find that economic growth has statistically significant positive effects in the latter while an opposite effect in the former.