Human Capital, Investment, and Economic Growth in Central Asia: A System GMM Analysis

Amrullo Abdulloev, Siti Parhah, Inomjon Qudratov

Abstract


Introduction/Main Objectives: This study examines the effect of the Human Development Index (HDI) and its inequality-adjusted counterpart (IHDI) on economic growth in five Central Asian countries - Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan, and Turkmenistan - over the period 2004–2023. Background Problems: Despite sustained macroeconomic reforms across Central Asian transition economies, the mechanisms through which human capital investment translates into economic growth remain insufficiently understood at the regional level.  Novelty: The empirical evidence demonstrates that HDI and IHDI as major positive drivers on Growth. Research Methods: A dynamic panel framework is estimated using Pooled OLS, Fixed Effects, and the two-step System Generalized Method of Moments (System GMM) estimator with Windmeijer-corrected standard errors, controlling for growth persistence, endogeneity, and unobserved country-specific heterogeneity. Finding/Results: The results show that physical investment is a robust and statistically significant driver of growth in the pooled specifications, while trade openness is significant in the within-country (Fixed Effects) dimension. The coefficients on HDI and IHDI are not statistically significant in any specification. This finding is attributable to three identifiable factors: the non-stationary, I(1) character of the human development indices relative to the stationary I(0) growth series; the very small within-country variation in a slowly moving composite index over a twenty-year horizon; and the conditional-convergence pattern whereby the highest-HDI economy (Kazakhstan) records the lowest average growth. Diagnostic tests (AR(2) and Hansen J) confirm the validity of the System GMM instrument set. Conclusion: The study concludes that in a small-N regional panel the growth contribution of human development operates primarily through physical-capital and trade channels that are statistically recoverable, whereas the direct HDI–growth elasticity cannot be precisely identified without a larger cross-country panel — an important methodological caution for regional policy evaluation


Keywords


Human Development Index; Economic growth; Central Asia; System GMM; Human Capital;

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DOI: https://doi.org/10.17509/msb.v8i1.105187

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