World Development Vol. 39, No. 4, pp.

506–522, 2011
Ó 2010 Elsevier Ltd. All rights reserved
0305-750X/$ - see front matter
www.elsevier.com/locate/worlddev
doi:10.1016/j.worlddev.2010.08.020

Paths to Success: The Relationship Between Human Development

and Economic Growth
TAVNEET SURI
MIT Sloan School of Management, Cambridge, MA, USA

MICHAEL A. BOOZER and GUSTAV RANIS

Yale University, New Haven, CT, USA

and
FRANCES STEWART *
University of Oxford, Oxford, UK
Summary. — This paper explores the two-way relationship between economic growth (EG) and human development (HD). We develop
panel data strategies to estimate the strength of these relationships and find that HD plays an essential role in determining growth
trajectories (our measure of sustained growth). Not only is HD a final product in the sense that it measures basic human well-being
but it is also a critical input into EG. Our findings illustrate the empirical relevance of endogenous growth, and are consistent with
threshold effect models. Our results imply that successful policy requires an early focus on HD, not only because of its direct impact
but also because of its feedback effect on sustaining EG.
Ó 2010 Elsevier Ltd. All rights reserved.

JEL classification — O15, O57, C23

Key words — human development, economic growth, threshold models

1. INTRODUCTION and the unobservables that often invalidate purely cross-sec-

This paper addresses the relationship between human
development (HD) and economic growth (EG). The contri-
bution is to examine jointly the effect of HD on EG and
the feedback of EG on higher HD. This allows us to better
understand the dynamics of developing countries’ growth
paths.
HD is a very broad notion, defined as improving the choices
of individuals so as to enable them to lead longer, healthier,
and fuller lives. It encompasses far more than the accumula-
tion of stocks of human capital. There is clearly a two-way
relationship between HD and EG. On the one hand, EG al-
lows the purchase of improved HD (e.g., Strauss & Thomas,
1995), and, on the other hand, improving HD levels enhances
an economy’s growth opportunities (e.g., Duflo, 2001; Schultz,
2005). HD here is viewed as the ultimate objective of develop-
ment while EG is seen as necessary to purchase improvements
in HD. We examine this feedback from HD into EG, which
then permits further improvements in HD, allowing an econ-
omy to sustain EG and maintain improvements in HD in a
mutually reinforcing fashion.
In this paper, we advance our understanding of the dynam-
ics of the two-way causal relationships between HD and EG,
conceptually and empirically. Understanding this relationship
is not an easy task since valid instruments are difficult to find
and these relationships are surely heterogeneous across coun-
tries. We focus on taking this heterogeneity seriously in our
empirical frameworks; therefore we use panel data to identify
the relationships between HD and EG, instead of using a
simultaneous equations framework. Drawing on theory to jus-
tify our approach, we try to control for both the observables
506
tional analyses.
Our work links two distinct parts of the current literature:
first, that on HD and its determinants, and second, that on
EG and its determinants. We integrate these two empirically,
considering the reverse causality between EG and HD, and
the simultaneity of the two flows. We thus attempt two tasks.
First, we make an empirical contribution by addressing the
dual causality between HD and EG. We study the two causal
relationships involved separately: how HD contributes to EG
and how EG supports HD. Second, we put these two relation-
ships together and examine the dynamic paths of HD and EG
to determine how important HD is in generating sustained in-
creases in EG and how important EG is in leading to improve-
ments in HD. This has implications for the sequencing of
policy. The two relationships have been studied separately,
but this paper is among the few (others include Mayer-Foulkes
(2005), Ranis, Stewart, and Ramirez (2000), and Sala-i-Martin
(2005)) to study them together and to relate them to each other
to understand the implications for policy.
Overall, we show that HD 1 is not smoothly substitutable for
other inputs in generating EG. Our results also suggest that
improving HD must precede or accompany rising EG for a
country to reach sustained growth. In terms of policy sequenc-
* We thank T.N. Srinivasan, T. Paul Schultz, and other participants of the
Yale Trade and Development seminar for valuable comments, and Titus
Lee for excellent research assistance. We gratefully acknowledge the su-
pport of the Carnegie Foundation. We also thank the Editor-in-Chief and
three anonymous referees for their valuable comments that have greatly
improved the paper. Final revision accepted: August 26, 2010.
 PATHS TO SUCCESS: THE RELATIONSHIP BETWEEN HUMAN DEVELOPMENT AND ECONOMIC GROWTH
ing, without improvements in HD, policy that attempts to en-
hance EG is highly unlikely to lead to sustained growth.
This paper is structured as follows: in Section 2 we briefly
review some of the literature. Section 3 describes our data
and presents some motivating descriptive patterns. Section 4
develops our empirical strategies. We develop country-specific
measures of the HD to EG and the EG to HD relationships
and then consider the interaction of these two measures over
time to explore the fundamental policy sequencing issue. Sec-
tion 5 concludes.
2. SOME RELEVANT LITERATURE
The literatures on generating HD and EG have generally re-
mained separate, though we discuss some exceptions below
(apart from Ranis et al. (2000) which we refer to in Section 3).
The literature on HD and what determines HD covers two
main strands. First, there is a large literature looking at the
role of income in generating better HD outcomes. Strauss
and Thomas (1995) provide a good review. The evidence
shows that improvements in incomes result in better health
and education outcomes (see Case, Lubotsky, & Paxson,
2002; Haddad, Alderman, Appleton, Song, & Yohannes,
2003). Cutler, Deaton, and Lleras-Muney (2005) argue that
the reductions in mortality and improvements in life expec-
tancy have been induced by technology improvements, which
came from improved incomes, helped by improvements in
education.
The second strand of research on HD has focused on appro-
priate measures of development and whether per capita in-
come levels are sufficient to measure well-being (see Sen,
1992; Sugden, 1993; UNDP’s Human Development Reports).
If HD is not only an end-product of the development pro-
cess but also a means to future EG, a unidirectional view that
EG simply leads to improved HD would lead to a mis-specifi-
cation of the relationship. Interestingly, the endogenous
growth theory literature tends to take the opposite view, with
education enhancing incomes and growth, but having no util-
ity value per se (exceptions include Blackburn and Cipriani
(1998) and Grossman (1972)). An earlier generation of devel-
opment economists had recognized this “problem” raised by
education being both a consumer good that is produced by
EG and an investment good that enhances future growth
(see Bowman & Anderson, 1963; Lewis, 1955).
In comparison to the literature on HD as an outcome, the
literature on what generates EG is vast. Historically, much
of it followed the neoclassical growth model of Solow (1956)
(see Barro, 1991; Barro & Sala-i-Martin, 1992; Bourguignon
& Morrisson, 1990; Levine & Renelt, 1992; Mankiw, Romer,
& Weil, 1992). The more recent endogenous growth literature
(see Aghion & Howitt, 1998) has focused on education and
R&D as reproducible factors through which current growth
can be converted into future growth. Uzawa (1965) was an
early example. Later authors such as Romer (1986) looked
more at R&D and “ideas” as a source of growth. Lucas
(1988) analyzed stocks of human capital that could allow
countries to grow at different rates indefinitely. In some of
these models, for example, Lucas (1988), since education is
smoothly substitutable for other inputs into EG, investments
in education are an input into EG, but not essential for sus-
taining EG.
In contrast, the threshold-externality model of Azariadis
and Drazen (1990) argues that, around a threshold, deter-
mined by a given level of education, the other inputs are not
smoothly substitutable for education. A minimum level of
507
education must be attained before an economy can escape
from a low-level income trap. Thus, while the Uzawa–Lucas
type models focus on explaining cross-sectional differences in
growth rates, a threshold model like that of Azariadis and
Drazen goes further to explain permanent shifts in such rates. 2
We use three different measures of HD: infant mortality
rates, life expectancy rates, and secondary school enrollment
rates. There is a large literature measuring the role of educa-
tion in EG (see, e.g., Bils & Klenow, 2000; Duflo, 2001;
Krueger & Lindahl, 2001). However, the literature describing
why improvements in infant mortality and/or life expectancy
matter for EG is more limited. Theoretical examples include
Howitt (2005) who models how improvements in infant mor-
tality or life expectancy could affect the steady state distribu-
tion of skills and hence EG. Chakraborty (2002) describes
how increases in infant mortality create adverse investment
incentives. Bloom and Canning (2000), Kalemli-Ozcan
(2002), and van Zon and Muysken (2005) empirically validate
the importance of infant mortality and life expectance for
growth. 3
There are a few models that consider the reverse effect of EG
on creating greater demand for HD, including the entrepre-
neur-focused models of Acemoglu (1996) and Redding
(1996). Aside from this, there is a small literature that dis-
cusses the two-way causality between HD and EG, such as
Morand (2005) who focuses on health and growth, and
Baldacci, Clements, Gupta, and Cui (2008) who look at the
role of education and health spending on education, health,
investment, and growth. The latter study finds that the com-
plete impact of education spending is only felt after about a
10–15 year time lag (though the effects of health spending
are more immediate), which is consistent with the lags we
use in our empirical work in Section 4 below.
In summary, while HD has long been viewed both as an in-
put into and as an outcome of the development process, the
feedback and dual causality between HD and EG have not
yet been fully taken into account. Once they are, it becomes
obvious that any analysis of the determinants of either EG
or HD alone is bound to be incomplete.
3. PRELIMINARY CROSS-SECTIONAL
CORRELATIONS
This section presents some preliminary baseline patterns of
the relationship between HD (in particular, infant mortality,
life expectancy, and secondary enrollment rates) and EG.
The correlations reported in this section are not causal, but
provide evidence of interesting correlations that we push fur-
ther in Sections 4 and 5. We present these results for two rea-
sons. First, the cross-sectional regression results provide a
benchmark against which to compare our later findings. Sec-
ond, the descriptive results on the dynamics in the paths of
HD and EG motivate the issues of policy sequencing that
we are interested in.
We use the conceptual framework of Ranis et al. (2000)
(henceforth RSR) to illustrate the two-way relationship be-
tween HD and EG, as illustrated in Figure 1. 4 With respect
to the chain running from HD to EG, aside from HD itself,
foreign and domestic investment, technology, openness etc.
are also important inputs into EG. 5 Similarly, how EG is
converted into HD depends on the private and public alloca-
tion of GDP, the distribution of income, and how effective
expenditure on HD is. In principle, each country has its own
production function relationship in each of these two direc-
tions, with links of varying strengths, depending on the
508 WORLD DEVELOPMENT

HUMAN
DEVELOPMENT

Human Development
Improvement Function
Labor, Entrepreneurial
and Managerial Abilities

Choice of Imported
Technologies, Adaptation,
Domestic R&D, Innovative HH Social NGO Social
Govt Social Exp/Priority
Capacity Expenditure and Expenditure
and Priority Ratios
Priority Ratios
Ratios
Foreign Domestic
Saving & Saving &
Investment Investment
Central and
Household Income NGO
Local Govt
Distribution and Expenditure
Expenditure
Poverty Rates Ratios
Composition of Output, Ratios
Exports, Distribution of
Income

GDP

Figure 1. The relationship between EG and HD.

1.2
HD-Lopsided Virtuous Cycle

0.8

8 -6 -4 -2 0 2 4 6
0.6

0.4
Africa
Middle East
East Asia
Latin America
0.2
South Asia

Vicious Cycle EG-Lopsided

0
Growth in per Capita GDP, 1960-2001

Figure 2. HD and EG performance, 1960–2001 (HD measured by IMSR).

country’s initial conditions, the changing environment, and
the policy setting. 6
Strong chains where HD has a relatively large impact on
EG, and EG has a large impact on HD, can lead countries into
mutually reinforcing cycles, which can be either “virtuous,”
where both HD and EG changes exceed the average for all
developing countries, or “vicious,” where a country’s perfor-
mance is below average in both dimensions. If a country does
better than average with respect to HD, but worse than aver-
age with respect to EG, we call it an “HD-lopsided” case, and
symmetrically for the “EG-lopsided” case. Using the World
Bank’s World Development Indicators (2003) and including
all developing countries (except those in Eastern Europe) with
a population in excess of 1 million during 1960–2001, we clas-
sify the remaining 79 developing countries into these four pos-
sible categories (Figure 2), where the averages are population
weighted. 7
There are, of course, a variety of ways of measuring an econ-
omy’s level and change in HD. 8 We use the infant mortality
rate (IMR), life expectancy (LE), and gross secondary enroll-
ment rates 9 (SECR) as indicators of HD. These three indica-
tors, which are highly correlated with each other and with
other core HD measures (see Ranis, Stewart, & Samman,
2006), have compensating strengths and weaknesses. IMR
 PATHS TO SUCCESS: THE RELATIONSHIP BETWEEN HUMAN DEVELOPMENT AND ECONOMIC GROWTH 509

Table 1. Virtuous, vicious, and lopsided performance, 1960–2001

Country 1960–70 1970–80 1980–90 1990–2001
Africa
Angola EG-lopsided Vicious Vicious –
Benin Vicious Vicious Vicious Vicious
Botswana Virtuous Virtuous Virtuous –
Burkina Faso Vicious Vicious Vicious Vicious
Burundi EG-lopsided Vicious Vicious Vicious
Cameroon Vicious Vicious Vicious Vicious
Central African Republic Vicious Vicious Vicious –
Chad Vicious EG-lopsided Vicious Vicious
Congo, Democratic Republic Vicious Vicious Vicious –
Congo, Republic Virtuous Virtuous Vicious Vicious
Ethiopia Vicious Vicious Vicious Vicious
Gabon EG-lopsided EG-lopsided Vicious Vicious
The Gambia Vicious Vicious Vicious Vicious
Ghana HD-lopsided Vicious Vicious Vicious
Guinea Vicious EG-lopsided Vicious Vicious
Guinea-Bissau EG-lopsided Vicious Vicious Vicious
Kenya HD-lopsided HD-lopsided HD-lopsided HD-lopsided
Lesotho EG-lopsided EG-lopsided Vicious Vicious
Madagascar Vicious Vicious Vicious Vicious
Malawi Vicious Vicious Vicious Vicious
Mali Vicious Vicious Vicious Vicious
Mauritania EG-lopsided Vicious Vicious –
Mauritius HD-lopsided Virtuous Virtuous Virtuous
Mozambique EG-lopsided Vicious Vicious Vicious
Namibia EG-lopsided Vicious Vicious –
Niger Vicious Vicious Vicious Vicious
Nigeria Vicious EG-lopsided Vicious Vicious
Rwanda Vicious Vicious Vicious Vicious
Senegal Vicious Vicious Vicious Vicious
Sierra Leone – Vicious Vicious Vicious
South Africa Virtuous Virtuous HD-lopsided HD-lopsided
Tanzania EG-lopsided Vicious Vicious Vicious
Togo EG-lopsided Vicious Vicious Vicious
Uganda HD-lopsided Vicious EG-lopsided Vicious
Zambia Virtuous Vicious Vicious Vicious
Zimbabwe HD-lopsided HD-lopsided HD-lopsided HD-lopsided
Middle East
Algeria Vicious EG-lopsided Vicious HD-lopsided
Egypt, Arab Republic EG-lopsided EG-lopsided Vicious Vicious
Iran, Islamic Republic EG-lopsided EG-lopsided Vicious Virtuous
Jordan – Virtuous HD-lopsided HD-lopsided
Morocco EG-lopsided EG-lopsided Vicious Vicious
Syria Virtuous Virtuous HD-lopsided HD-lopsided
Tunisia – EG-lopsided HD-lopsided HD-lopsided
Turkey EG-lopsided Vicious Vicious HD-lopsided
East Asia
China HD-lopsided Virtuous Virtuous Virtuous
Hong Kong, China Virtuous Virtuous Virtuous HD-lopsided
Indonesia HD-lopsided EG-lopsided EG-lopsided HD-lopsided
Korea, Republic Virtuous Virtuous Virtuous Virtuous
Malaysia HD-lopsided Virtuous HD-lopsided HD-lopsided
Papua New Guinea EG-lopsided Vicious HD-lopsided –
Philippines HD-lopsided HD-lopsided HD-lopsided HD-lopsided
Singapore Virtuous Virtuous Virtuous Virtuous
Thailand Virtuous Virtuous Virtuous HD-lopsided
South Asia
Bangladesh Vicious Vicious EG-lopsided Vicious
India EG-lopsided Vicious EG-lopsided EG-lopsided
Nepal Vicious Vicious Vicious Vicious
Pakistan EG-lopsided Vicious Vicious Vicious
Sri Lanka HD-lopsided HD-lopsided Virtuous Virtuous
(continued on next page)
510 WORLD DEVELOPMENT

Table 1—continued
Country 1960–70 1970–80 1980–90 1990–2001
Latin America
Argentina Virtuous HD-lopsided HD-lopsided Virtuous
Bolivia Vicious Vicious Vicious Vicious
Brazil Virtuous Virtuous HD-lopsided HD-lopsided
Chile Virtuous HD-lopsided HD-lopsided Virtuous
Colombia HD-lopsided Virtuous HD-lopsided HD-lopsided
Costa Rica HD-lopsided HD-lopsided HD-lopsided HD-lopsided
Dominican Republic Virtuous Virtuous HD-lopsided Virtuous
Ecuador HD-lopsided Virtuous HD-lopsided HD-lopsided
El Salvador HD-lopsided Vicious Vicious HD-lopsided
Guatemala HD-lopsided Vicious Vicious HD-lopsided
Haiti Vicious Vicious Vicious –
Honduras Vicious Vicious HD-lopsided HD-lopsided
Jamaica Virtuous HD-lopsided Virtuous HD-lopsided
Mexico Virtuous Virtuous HD-lopsided HD-lopsided
Nicaragua Virtuous HD-lopsided Vicious HD-lopsided
Panama Virtuous HD-lopsided HD-lopsided HD-lopsided
Paraguay Virtuous Virtuous HD-lopsided HD-lopsided
Peru Virtuous Vicious HD-lopsided HD-lopsided
Trinidad and Tobago Virtuous Virtuous HD-lopsided HD-lopsided
Uruguay HD-lopsided Virtuous HD-lopsided Virtuous
Venezuela, RB HD-lopsided Virtuous HD-lopsided HD-lopsided
Notes: Throughout, all data are from the online WDI (2003) except public expenditure on health (from HDR 2001).

has the virtue of a relatively short time lag from EG to
improvements in HD. The enrollment data, though a key indi-
cator of an economy’s policy mix concerning the human cap-
ital elements of HD, may have a longer lag time as
infrastructure often needs first to be built; moreover, they do
not account for the quality of schooling. LE is a good overall
measure of a country’s HD level, but is not generally accu-
rately measured on a year to year basis.
Following UNDP practice, we scale the change in HD indi-
cators relative to a ceiling from the world’s best performers
and define HD changes as shortfall (or gap) reductions as in
UNDP’s early Reports. For infant mortality and life expec-
tancy the ceilings are set at 3 per 1,000 and 85 years, respec-
tively. 10
For the period 1960–2001, using the Infant Mortality Short-
fall Reduction (IMSR) as the measure of HD improvement
and per capita real income growth (using PPP GDP data) as
the measure of EG, we divide the HD/EG plane into the
virtuous, vicious, HD-lopsided, and EG-lopsided cycles in
Figure 2. The sub-Saharan African and some South Asian
countries dominate the vicious cycle, and the East Asian coun-
tries dominate the virtuous cycle. It is striking that the EG-
lopsided quadrant is empty. This provides an initial indication
that the EG-lopsided outcome is not stable in the long-run and
suggests the importance of HD improvements as measured by
the IMSR for sustaining EG. On the other hand, countries
seem to be able to achieve large increases in HD in the pres-
ence of relatively low EG, indicating that countries can sustain

2 2

Improve HD 3

2
Improve EG

Africa South Asia East Asia Middle East Latin America

Figure 3. Country IMSR-EG quadrant changes over 1960–2001, all regions. Note: The numbers refer to the number of countries making the transition shown.
No number implies only one country.
 PATHS TO SUCCESS: THE RELATIONSHIP BETWEEN HUMAN DEVELOPMENT AND ECONOMIC GROWTH
Table 2. From HD to EG (dependent variable is GDP per capita growth, 1960–2001)
Variable (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)
GDP per capita, 1960 0.0105 0.0138 0.0065 0.0541 0.0632 0.0538 0.0630 0.0476 0.0538 0.0419 0.0420 0.0342
[0.22] [0.33] [0.16] [1.09] [1.49] [1.27] [1.09] [0.88] [1.03] [0.69] [0.69] [0.58]
Infant mortality, 1960 0.0079 0.0063
[4.77]*** [3.55]***
IMSR, 1960–80 0.0444 0.6727
[0.08] [1.24]
Life expectancy, 1960 0.0468 0.0380
[5.02]*** [3.82]***
LESR, 1960–80 0.3942 0.8163
[0.44] [0.91]
Gross secondary 0.0282 0.0183
enrollment, 1960 [3.14]*** [1.78]*
SECSR, 1960–80 0.5213 0.9567
[0.78] [1.38]
Domestic investment, 0.0513 0.0477 0.0482 0.0451 0.0510 0.0530 0.0198 0.0250 0.0234
1960–2000 [3.24]*** [3.80]*** [3.77]*** [3.00]*** [3.79]*** [4.10]*** [1.38] [1.74]* [1.72]*
Exports (% of GDP), 0.0041 0.0037 0.0041 0.0008 0.0020 0.0022
1960–2000 [0.96] [0.92] [1.01] [0.11] [0.28] [0.32]
Gini coefficient, 1960–2000 0.0046 0.0027 0.0042
[0.43] [0.32] [0.48]
Poverty headcount, 0.0194 0.0179 0.0184
1985–2000 [4.16]*** [4.20]*** [4.31]***
Middle East 0.5032 0.5071 0.8976 0.0820 0.2001 0.5449 0.4174 0.5518 0.5798 0.1163 0.3106 0.2844
[2.05]** [2.19]** [4.15]*** [0.28] [0.78] [2.09]** [1.72]* [2.31]** [2.49]** [0.45] [1.18] [1.10]
Asia 0.9635 0.8738 0.9565 0.6085 0.5263 0.5974 0.8895 0.8874 0.9095 0.7253 0.7328 0.7377
[3.90]*** [4.11]*** [4.58]*** [2.36]** [2.48]** [2.84]*** [3.70]*** [3.92]*** [3.93]*** [3.07]*** [3.21]*** [3.27]***
Latin America 0.2650 0.0815 0.1790 0.1437 0.1448 0.0700 0.5220 0.5216 0.5631 0.5142 0.4765 0.4603
[1.35] [0.41] [1.06] [0.70] [0.74] [0.42] [2.84]*** [2.89]*** [3.51]*** [2.92]*** [2.62]** [2.87]***
Constant 1.0484 2.8445 0.3263 1.6820 3.2160 0.5990 1.9868 2.0721 2.0749 0.4114 0.5501 0.4697
[8.77]*** [7.13]*** [1.20] [2.94]*** [5.37]*** [1.12] [7.10]*** [8.42]*** [8.38]*** [0.95] [1.36] [1.15]
Observations 74 79 79 61 65 65 73 79 79 55 57 57
Notes: Figures in parentheses are absolute t-statistics; omitted region is Africa.
LE and poverty headcount are highly correlated (0.59), as are poverty headcount and gross female primary enrollment (0.51). R2’s are not shown and vary from 0.5 to 0.7.
*
Significance at 10% level.
**
Significance at 5% level.
***
Significance at 1% level.

511
512 WORLD DEVELOPMENT

Table 3. From EG to the change in HD (dependent variable is the IMSR, 1960–2001)

Variable (1) (2) (3) (4) (5) (6) (7) (8)
Log GDP per capita, 1960 0.0254 0.0242 0.0269 0.0077 0.0286 0.0353 0.0324 0.0190
[2.87]*** [2.69]*** [2.78]*** [0.57] [2.69]*** [2.97]*** [2.95]*** [1.24]
GDP per capita growth, 1960–80 0.1172 0.0739 0.0658 0.1681 0.0646 0.0686 0.0669 0.0419
[2.74]*** [1.57] [1.36] [2.41]** [1.20] [1.06] [1.04] [0.74]
Gross primary enrollment rate, 1960 0.0013 0.0003 0.0012
[2.49]** [0.44] [1.77]*
Gross female primary enrollment, 1960 0.0012 0.0030 0.0013 0.0004
[2.27]** [4.51]*** [2.18]** [0.53]
Average Gini coefficient, 1960–2000 0.0041 0.0010
[1.52] [0.46]
Average poverty headcount, 1985–2000 0.0040 0.0042
[3.31]*** [3.32]***
Public education expenditure per capita, 1960–70 0.0015
[2.02]*
Public health expenditure per capita, 1960 0.0000
[1.94]*
Middle East 0.3153 0.3150 0.3327 0.3380 0.2828 0.2724 0.3353
[6.21]*** [6.17]*** [6.50]*** [5.66]*** [4.30]*** [4.20]*** [4.49]***
Asia 0.3128 0.2854 0.2922 0.2963 0.2682 0.2664 0.2956
[7.35]*** [6.38]*** [6.63]*** [6.10]*** [4.83]*** [4.80]*** [4.98]***
Latin America 0.2596 0.2152 0.2128 0.2360 0.2432 0.2452 0.2179
[8.37]*** [5.71]*** [5.46]*** [5.38]*** [5.40]*** [5.59]*** [4.43]***
Constant 0.4778 0.4086 0.4271 0.6518 0.4610 0.6144 0.6185 0.3376
[23.74]*** [12.28]*** [14.00]*** [4.97]*** [4.57]*** [8.61]*** [7.64]*** [7.91]***
Observations 79 76 75 63 63 55 56 35
R2 0.71 0.73 0.74 0.47 0.74 0.74 0.74 0.84
Notes: Figures in parentheses are absolute t-statistics; omitted region is Africa.
The gross female primary enrollment rate and ratio of female to male primary enrollment rate are highly correlated (0.76).
*
Significance at 10% level.
**
Significance at 5% level.
***
Significance at 1% level.

HD, even without vigorous EG. These are the HD-lopsided
countries, predominantly represented by Latin America. 11
Though Figure 2 illustrates the long-run cross-sectional pat-
terns in HD and EG from 1960 to 2001, it says nothing about
the dynamics over this period. To examine this and the issue of
sequencing, in Table 1 and Figure 3 we show the decade-by-
decade time paths for each country. 12 Note that countries in
the vicious cycle have a strong tendency to remain there. Only
two countries exit the vicious cycle by 2001, both into HD-lop-
sided. In the 1980s, many of the Latin American countries
slipped back from virtuous into HD-lopsided, probably due
to the debt crisis. Not a single country remained in the EG-
lopsided quadrant over time. The majority of the countries
that initially occupied this quadrant slipped back into the vi-
cious cycle quadrant. The only exception is India, which
moved from the EG-lopsided into the vicious cycle and then
back into the EG-lopsided cycle. No country moved from
the EG-lopsided straight into the virtuous category. Clearly,
the EG-lopsided state is not a stable outcome in the long
run, nor does it lead to a virtuous cycle without emphasizing
HD. These findings could have important sequencing implica-
tions, that is, the need for prior or at least simultaneous HD
improvements to achieve above average improvements in EG.
Finally, we present some benchmark cross-sectional regres-
sion results on the above empirical correlations underlying
the two relationships. We show these OLS results in order to
be able to compare them to the results in Section 4 below
where we use panel data methods.
In particular we look at the following OLS model in Table 2:
gi ¼ a þ HD0i s þ z0i h þ gj þ fi ;
where gi is the average growth rate for country i from 1960 to
2001, the HDi’s are measures of HD (either the levels or the
changes in our three HD measures), the zi’s are other explan-
atory variables (the investment rate, the export rate, the Gini
coefficient, and the poverty headcount), and the gj’s are regio-
nal dummies.
From Table 2, we see evidence of two familiar correlations:
(i) a robust, positive effect of the domestic investment rate and
(ii) a conditional convergence effect implied by the negative
coefficient on initial GDP per capita. Columns (1)–(6) show
the strong correlation of EG with initial HD levels, measured
by lagged levels of life expectancy, infant mortality, or second-
ary enrollment rates. However, HD changes do not seem to
have a significant correlation with EG, as shown in columns
(7)–(12). Columns (4)–(6) show that the extent of income
inequality as measured by the Gini coefficient is inversely re-
lated to EG but not significantly so, but, the poverty head
count ratio is significantly inversely related to EG. The overall
message from Table 2 is that initial/lagged HD levels strongly
correlate with subsequent EG performance, in addition to
other standard determinants of growth.
With respect to Table 3, we look at:
IMSRi ¼ c þ sy i0 þ wgi0 þ w0i d þ gj þ ni ; ð2Þ
where yi0 is the initial GDP per capita in 1960, gi0 is the growth
rate of GDP per capita from 1960 to 1980, the wi’s are other
explanatory variables (primary enrollment rate, Gini coeffi-
cient, poverty headcount, and public education and health
expenditures) and the gj’s are regional dummies.
In Table 3, the basic correlation between EG and improve-
ð1Þ ments in HD is significant in two of the eight specifications,
 PATHS TO SUCCESS: THE RELATIONSHIP BETWEEN HUMAN DEVELOPMENT AND ECONOMIC GROWTH
with the level of GDP significant in six of the specifications.
These relationships are stronger if regional differences are
not accounted for. The education variables, both enrollment
rates and public expenditure shares, are almost invariably sig-
nificant. When the Gini is included (columns (5) and (6)), the
impact of EG on HD improvements is weakened (due to the
change in sample size). Columns (7) and (8) present similar
specifications showing the importance of the poverty head-
count ratio. And, finally, column (9) shows the significance
of the share of public expenditure on health (measured in
per capita terms). Overall, the regressions in Table 3 indicate
the significant correlation of EG with improvements in HD.
The descriptive analysis presented here suggests two impor-
tant hypotheses. First, HD and EG improvements tend to
move in tandem over the long run, with evidence of mutual
interaction. Second, increases in a country’s EG appear to
be sustained only if HD levels were upgraded earlier or at
the same time. The second of these hypotheses would contra-
dict the neoclassical view that different inputs into the growth
process are substitutable, for example that investment in phys-
ical capital is substitutable for investment in humans. In what
follows, we examine these hypotheses more precisely, includ-
ing the sequencing hypothesis that HD must be improved
either before or at least concurrently with EG if EG is to be
sustained.
4. CAUSAL EMPIRICAL ANALYSIS
Our empirical analysis in this section is in two parts. In Sec-
tion 4(a), we examine the strength of the relationship from HD
to EG, drawing on standard neoclassical and endogenous
growth theory models. In Section 4(b), we examine the reverse
relationship, recognizing that theoretical models relevant to
the production of HD are less well developed and, more
importantly, the data available for HD are far less comprehen-
sive. In both cases, we use the panel nature of the data to ad-
dress issues of simultaneity and causality. A standard IV
approach common in micro level studies (e.g., Acemoglu,
Johnson, & Robinson, 2002; Gallup, Sachs, & Mellinger,
1998; Pritchett & Summers, 1996) cannot be used in this sort
of macro-level study because credible instruments are extre-
mely hard to find and IV methods are often unable to account
for the possible heterogeneity in the relationships across coun-
tries. We rely on panel data methods to circumvent these prob-
lems.
(a) Growth paths: measuring the strength of links
from HD to EG
We start with the standard neoclassical growth model. We
show that our empirical strategy is also compatible with
broader models such as endogenous growth models. The neo-
classical model implies a simple decomposition of the time ser-
ies of growth rates for a given country that will provide the
basis of our empirical strategy for identifying the strength of
the links from HD to EG.
Standard neoclassical growth models (e.g., Barro & Sala-i-
Martin, 1992) and endogenous growth models dealing with
human capital (e.g., Lucas, 1988) distinguish between the pure
size of an economy i’s labor force, Li, and its effective size,
Li exi t , where xi is the exogenous (or endogenous, depending
on the model) rate of “labor augmenting technical progress.”
In broad terms, precisely what xi represents is likely to vary
across countries (perhaps computer skills matter more in
emerging economies and basic health and primary education
513
in poorer societies). For our sample of countries, we posit that
xi is the rate of HD improvement, since HD is a basic ingredi-
ent in creating a quality workforce at all levels. In both the
exogenous and endogenous versions of the human capital aug-
mented growth model, xi is still assumed to be smoothly sub-
stitutable for other inputs.
To explore the relationship between HD and growth over
time, particularly since these relationships are likely to be het-
erogeneous, we use a measure for each country that captures
the trend change in growth, which we term its “growth trajec-
tory.” In the empirical growth literature, the average growth
rate over the sample period is commonly used as the EG mea-
sure. However, as we show, average growth rates are not
appropriate for our purposes as they include information on
steady states. By using the growth trajectory, we eliminate
the country fixed effect and hence everything that determines
the country’s steady state level of income (a function of initial
conditions and history). Moreover, we do not want to impose
strict assumptions of homogeneity across countries.
To derive the growth trajectory for each country, we turn to
the neoclassical model as in Barro and Sala-i-Martin (1992)
where the growth rate of output per worker between t and
t  1 for country i is:
git ¼ ð1  ek Þðlogð^y i Þ  logðy i;t1 ÞÞ þ ek xi þ ð1  ek Þxi  t þ eit ;
ð3Þ
where xi represents the rate of “exogenous” labor augmenting
technological progress, ^y i is the country-specific steady-state
output per effective worker, yi,t1 is the lagged level of output
per worker, k is the speed of convergence to the steady state,
and t is a time trend. This model implies that growth rates
across countries can be decomposed into a country-specific
intercept ai, a linear country-specific trend bi, a convergence
effect, and a transitory component, that is:
git ¼ ai þ bit þ ci logðy i;t1 Þ þ eit ; ð4Þ
where
ai ¼ ð1  ek Þ logð^y i Þ þ ek xi ; ð5Þ
k
bi ¼ ð1  e Þxi ; ð6Þ
k
ci ¼ ð1  e Þ; ð7Þ
The cross-country growth literature typically assumes that the
coefficients ai, bi, and ci are homogeneous across countries (see
Barro & Sala-i-Martin, 1992, 1995; Mankiw et al., 1992). This
literature relies on the cross-sectional nature of the data. Islam
(1995) uses panel data to allow ai, and thus steady-state in-
come differences, to vary across countries, but maintains the
other parameters to be homogeneous.
We approach the problem from a panel perspective. We rely
on the 40-year time span of our data to identify ai, ci, and,
most importantly, bi, for each country. We then adopt our
estimate of bi as our estimate of country i’s growth trajectory.
It is important to emphasize that Eqn. (4) is purely a decom-
position of growth rates into its four components. If we then
link this decomposition back to Eqns. (3) and (6), the major
advantage of bi is that it gives us a clean representation of
the empirical factors that drive growth, here the xi. Even
though xi is also a component of the intercept ai in Eqn. (4),
ai does not have this advantage as it is also affected by the stea-
dy state level of per capita income, ^y i , which is a function of
initial conditions and past history. We therefore want to ex-
clude it from our measure of the growth trajectory. The bi’s
by contrast are largely free of initial conditions and history
and independent of the ai country fixed effects.
514 WORLD DEVELOPMENT
GDP per capita
Growth Rate
αi
Positive
growth
Negative
growth
Figure 4. Stylized growth trajectories (no exogenous technical progress).
The average growth rate, gi , used in much of the literature,
is a function of the country-specific intercept from Eqn. (4)
and hence of the country’s steady-state income level:
gi ¼ ^ ^i ððT þ 1Þ=2Þ þ ^ci logðy Þ:
ai þ b
i increasing nor decreasing over the sample period. Average
Instead of using gi , we use the bi’s, which measure the trend
change in the growth performance of an economy. They mea-
sure whether an economy managed to sustain growth
improvements over the sample period 13 and are independent
of steady state differences across countries.
While the decomposition of the growth rates given by Eqn.
(6) is derived from the neoclassical growth model, it is compat-
ible with a large variety of endogenous growth models. The
form of the decomposition depends on the particular version
of the model. An important question is how useful the esti-
mates obtained from Eqn. (4) are if the growth path is non-lin-
ear. In principle, we could use the 40 year time span of EG to
fit a non-linear trend, specific to each country. Detecting trend
breaks using annual observations when the potential breaks
are heterogeneous across countries is, however, not feasible,
given our sample size and time span. We therefore rely on
the linear trend. The trajectory coefficient, bi, indicates
whether the path of EG is increasing, flat, or decreasing. Even
in the case where a threshold-type model is generating non-lin-
ear growth paths, the linearized trend coefficient bi will serve
as a useful approximation of the strength of growth. 14
Figure 4 illustrates intuitively how the growth trajectory is
compatible with three broad theoretical structures, even when
the true growth path exhibits non-linearities. In a neoclassical
model, long run growth is constant. In a standard endogenous
growth model, accelerated growth is possible and our empiri-
cal structure is compatible with this. Finally, even with non-
linear threshold externality models, if the threshold is crossed
during the sample period, it implies an acceleration in growth
rates (see the dashed line in Figure 4 which shows a positive
estimate for the trend coefficient, bi). 15
Empirically, we obtain a measure of bi by applying OLS 16
to Eqn. (4) for each country. This generates the estimated
country-specific growth trajectories, b ^i , the average rate of
change of the growth rate, or rate of acceleration, which we
use to explore the strength of the HD–EG relationship.
Endogenous Growth
Model
Threshold Model
Slope = β i
Solow Model
Time
A country can have a positive growth trajectory, with
^i > 0, and yet have negative average growth, gi < 0. All our
b
countries have growth trajectories in the range of 0.02 to
0.02, with the average b ^i  0, that is, b^i ’s that are neither
ð8Þ
growth rates over the period, by contrast, vary much more
across countries. The fact that there is little variation in the
^i measures when compared to the average growth rates gi
b
makes it harder for us to detect the effects of HD and other
covariates on the b^i ’s.
We now investigate the empirical determinants of the
growth trajectory. Evidence on sequencing in Figure 3 and
Table 1 led us to hypothesize that HD levels and/or improve-
ments affect countries’ growth, and, by extension, we
hypothesize that they affect a country’s growth trajectory.
Whether HD levels or the changes are relevant for the growth
trajectory is an empirical issue. 17
Since HD is also a product of EG, to eliminate the prob-
lem of reverse causality we use HD data from early in the
sample period. It is worth emphasizing that we have already
removed country level fixed effects. Our results should there-
fore not be driven by simultaneity, especially since HD takes
time to build, and we should not expect instantaneous feed-
back.
We therefore examine the relationship between HD levels,
HD changes, and the estimated b ^i ’s. We also examine whether
conventional explanatory factors for EG, such as investment
and exports, play a role. Therefore, we specify our second step
empirical model as follows:
^i ¼ g þ HD0 s þ z0 h þ fi ;
b i i ð9Þ
which comes directly from Eqns. (3) and (6). In Eqn. (6), bi is a
function of just xi where xi represents an exogenous technolog-
ical progress factor. We hypothesize that this factor is at least
partly driven by HD (either levels or changes) and not by more
conventional variables such as investment and exports. Eqn.
(9) allows us to test this hypothesis.
Our results are presented in Table 4. Columns (1)–(6) in-
clude levels of “early” (defined as the 1960–80 average) HD
as explanatory variables, and columns (7)–(12) show specifica-
tions with changes in early HD. From column (1), a higher
 PATHS TO SUCCESS: THE RELATIONSHIP BETWEEN HUMAN DEVELOPMENT AND ECONOMIC GROWTH
Table 4. Using HD levels and changes to explain growth trajectories across countries (dependent variable is estimated growth trajectory coefficient; HD levels and changes are for 1960–80)
Variable (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)
Infant mortality, 0.0490 0.0462
1960–80 (1,000) [2.92]*** [2.41]**
IMSR, 1960–80 (100) 0.1379 0.1894
[0.29] [0.35]
Life expectancy, 0.2935 0.2308
1960–80 (1,000) [3.20]*** [2.30]**
LESR, 1960–80 (100) 1.0513 0.5929
[1.44] [0.70]
Sec enrollment, 0.1316 0.0960
1960–80 (1,000) [2.23]** [1.61]
SECSR, 1960–80 (100) 0.3747 0.4214
[0.69] [0.86]
Domestic investment, 0.0211 0.0328 0.0209 0.0977 0.0705 0.0530
1960–80 (1,000) [0.24] [0.37] [0.23] [1.03] [0.76] [0.49]
Change in investment, 0.1320 0.1185 0.1330 0.1026 0.1066 0.1308
1960–80 (100) [1.78]* [1.61] [1.72]* [1.30] [1.38] [1.80]*
Exports, 1960–80(1,000) 0.0151 0.0144 0.0035 0.0146 0.0112 0.0122
[0.48] [0.46] [0.11] [0.44] [0.36] [0.40]
Change in exports, 0.0646 0.0713 0.0477 0.0708 0.0533 0.1039
1960–80 (100) [0.89] [0.98] [0.64] [0.87] [0.69] [1.48]
Middle East (100) 0.4514 0.3041 0.3348 0.6581 0.4927 0.5517 0.4973 0.4061 0.4202 0.7052 0.6099 0.6257
[2.48]** [1.53] [1.69]* [3.29]*** [2.27]** [2.49]** [2.41]** [1.92]* [2.14]** [3.18]*** [2.60]** [3.21]***
Asia (100) 0.6362 0.5399 0.6174 0.6847 0.6764 0.7707 0.8035 0.6825 0.7514 0.9521 0.8527 0.8197
[4.36]*** [3.42]*** [3.77]*** [3.37]*** [3.25]*** [3.74]*** [4.93]*** [4.01]*** [5.15]*** [4.75]*** [3.99]*** [4.51]***
Latin America (100) 0.2367 0.0484 0.2754 0.4380 0.3208 0.5001 0.4795 0.3791 0.4111 0.6882 0.5980 0.6033
[1.56] [0.26] [1.72]* [2.71]*** [1.60] [2.93]*** [3.37]*** [2.49]** [2.87]*** [4.57]*** [3.52]*** [4.30]***
Constant (10) 0.0075 0.1926 0.0751 0.0198 0.18445 0.0892 0.0850 0.0921 0.0725 0.0765 0.0898 0.0863
[0.22] [5.14]*** [4.67]*** [0.72] [3.99]*** [7.47]*** [4.92]*** [5.28]*** [4.12]*** [4.58]*** [5.35]*** [6.69]***
Observations 71 70 71 55 55 55 70 70 66 55 55 51
R2 0.49 0.5 0.46 0.53 0.52 0.49 0.42 0.44 0.41 0.47 0.47 0.52
Notes: Figures in parentheses are absolute t-statistics; omitted region is Africa.
*
Significance at 10% level.
**
Significance at 5% level.
***
Significance at 1% level.

515
516 WORLD DEVELOPMENT
infant mortality rate (IMR) implies that a country is less likely
to have a positive growth trajectory. The coefficient implies
that for a one standard deviation decrease in IMR, over a dec-
ade there would be a 2.2 percentage point increase in growth.
Columns (2) and (3) look at life expectancy (LE) and the gross
secondary enrollment rate (SECR). All the HD variables are
highly correlated so measuring their separate influence in
one regression is not possible. To interpret the magnitudes, a
one standard deviation increase in LE over a decade implies
a 2.7 percentage points increase in growth and a one standard
deviation increase in SECR over a decade increases growth by
1.9 percentage points. On the whole, the initial levels of vari-
ous aspects of HD are strongly related to subsequent positive
growth trajectories, b^i . Columns (4)–(6) repeat these specifica-
tions for HD and include the changes in the investment and
export ratios. Only the changes in the investment rate lead
to increasing growth trajectories—not even the change in the
export rate, nor the levels of these variables. 18
Columns (7)–(12) focus on the role of HD changes (we use
the change in HD from 1960 to 1980). Though changes in
HD have positive impacts on growth trajectories, these im-
pacts are not significant. 19 A one standard deviation increase
in IMSR leads to a 0.3 percentage point increase in growth
over a decade; similarly, the effects of LESR and SECSR on
growth over a decade are 1.3 and 0.5 percentage points,
respectively. Across these specifications, neither levels nor
changes of the export rate are ever significant. The levels of
the investment rate are also not significant, and the changes
in the investment rate are marginally significant in only three
of the six specifications. 20
To summarize these results, there is clear evidence of a
strong positive relationship between early HD levels and coun-
tries’ growth trajectories, implying that promoting higher HD
levels early on is an important element in creating an acceler-
ation in growth. In contrast, only the change in the investment
ratio, not its level, appears to be relevant, and its effects are
much smaller.
(b) Measuring the strength of the links from EG to HD
We now examine the EG to HD relationship. The data
availability on HD measures is very limited, providing less
flexibility in incorporating country-specific heterogeneity.
Moreover, theoretical models to account for what generates
HD improvements are not as developed as those for EG.
To construct country-specific measures of the strength of the
EG to HD relationship, we have to use the cross-sectional
relationship between EG and HD improvements while
accounting for dynamics. In particular, we use the country-
specific fitted residuals from a regression of “late” (1980–
2001) HD improvements on “early” EG (1960–80). To reduce
any reverse causality, we use the lags inherent in improving
HD, as it takes time to build HD infrastructure. And, we
use the change in HD over this early period and not its levels
since that allows us to eliminate country effects that may affect
the analysis. The idea is that, conditional on EG, countries
that have better HD improvements (i.e., larger fitted residuals)
at the end of the period are inferred to have been more effec-
tive in translating EG into HD. To formalize how we measure
these country-specific strengths, we use:
DHDi1 ¼ j þ wi gi0 þ ni ; ð10Þ
where 0 and 1 subscripts represent the early (1960–80) and
the late (1980–2001) periods in the sample, respectively. The
country-specific conversion of early growth into HD is given
by the country-specific slope wi. Taken literally, this regres-
sion has fewer observations than parameters to estimate if
the slope parameters are allowed to be heterogeneous. Allow-
ing for such heterogeneity would be consistent with the strat-
egy above for the HD to EG relationship but we do not have
the data to do this and it would require us to make very pre-
cise assumptions on the lag structure in the model. Instead,
we focus on the cross-sectional relationship between DHDi1
and gi0. The question we ask is: for a given early period
growth rate, gi0, what is the improvement in HD in the later
period? The answer is simply the fitted residual to the follow-
ing regression:
DHDi1 ¼ j þ wgi0 þ vi : ð11Þ
We use the fitted residual from Eqn. (11) as a country-specific
measure of the strength of the EG to HD relationship. By the
mechanics of OLS, this residual (call it ^vi ) is uncorrelated with
gi0 and is the part of HD improvement that is not due purely
to high initial growth. Intuitively, this measure would indicate
the policy preferences and behavior of an economy toward
HD since the regression nets out the initial EG as a reason
for improvements in subsequent HD.
If we compare this measure, ^vi , with the ideal measure wi
(from Eqn. (10)), we obtain
^vi ¼ ^ ^
ni þ ðwi  wÞg ð12Þ
i0 :
If the regression error above, ^
ni , is small, it implies that gi0 is
a necessary condition for HD improvement and ^vi reflects the
efficiency with which an economy converts its early EG pro-
ceeds into HD improvements. It is therefore a good measure
of the strength of the EG to HD relation. 21
A final issue is that HD is multidimensional. Since we would
like to capture education and health dimensions of HD, we use
the IMSR, SECSR, and LESR. Using these three, we also con-
struct a composite index, which is a simple average of the three
sets of residuals. 22 While we do not necessarily advocate the
use of such an index, we use it here only for expositional con-
venience. 23
We can now discuss our results. Figure 5 shows an example
of the fitted regression lines of IMSR during 1980–2001 on EG
from 1960 to 1980. The regression coefficient corresponding to
this fitted line is 0.303 with a p-value of 0.001. For a given
country, its vertical deviation from the fitted line represents
the fitted residual ^vi which measures the strength of a country’s
EG to HD relationship. Singapore stands out as having the
largest reduction in IMR, while Chile and Malaysia also do
well. Because our measure of the strength of the EG to HD
relationship conditions on initial growth, these countries score
better than does Korea, which had about the same IMSR as
Chile, but much higher early growth as well. Meanwhile, Ga-
bon and Kenya perform quite poorly. 24
Combining, the residuals from the regression in Figure 5
with similar residuals from LESR and SECSR regressions into
an index, Chile, Sri Lanka, Egypt, and Korea show strong po-
sitive links from EG to HD while the Republic of Congo,
Botswana, Lesotho, and Kenya do not do well.
In Table 5 we analyze where these differences may come
from, given Figure 1. We look at what policy variables may
lead to better HD outcomes (keeping in mind that the index
consists of several elements of HD). We report regression spec-
ifications separately for per capita public expenditures on
education and health as they are highly collinear. Per capita
public expenditures on education and health are significantly
positively related to the strength of this relationship, while
the extent of income inequality is strongly inversely related.
Government expenditure priority ratios have positive effects.
 PATHS TO SUCCESS: THE RELATIONSHIP BETWEEN HUMAN DEVELOPMENT AND ECONOMIC GROWTH 517

Figure 5. From early EG to late HD (analysis using IMSR).

Table 5. Explaining the strength of the EG to HD relationship across countries with policy (dependent variable is the estimated strength of Chain A, as
measured by the index)
Variable (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11)
Public education expenditure 0.1412 0.1225 0.0868 0.1321 0.0237 0.2815 0.0776
per capita, 1960–70 (100) [2.12]** [1.68] [1.16] [1.94]* [0.36] [2.49]** [0.92]
Public health expenditure 0.0173 0.0180 0.0087 0.0609 0.0099 0.0190
per capita, 1960 (1,000) [0.66] [0.91] [0.14] [1.43] [0.42] [1.03]
Priority ratio: % public 0.5632 0.5157 0.2792
education exp on pre/primary (100) [2.04]* [1.30] [1.08]
Priority ratio: % public 0.1132
education exp on secondary (100) [0.59]
Gini coefficient, 1960–2000 (100) 0.9140 0.4414 0.8597 0.6513
[2.78]*** [1.31] [2.31]** [1.86]*
Middle East 0.2021 0.2043 0.2488 0.3623 0.3360 0.2732
[2.24]** [2.13]** [2.85]*** [3.97]*** [2.69]** [2.79]***
Asia 0.2774 0.3039 0.2120 0.2955 0.3722 0.2436
[4.42]*** [4.73]*** [3.51]*** [4.85]*** [5.34]*** [3.73]***
Latin America 0.2073 0.2209 0.2170 0.2849 0.2697 0.2982
[2.94]*** [2.97]*** [3.49]*** [4.77]*** [3.68]*** [4.93]***
Constant 0.0327 0.4290 0.1572 0.401 0.0768 0.0195 0.2086 0.3531 0.4143 0.4245 0.1116
[0.88] [3.45]*** [2.21]** [2.66]** [0.46] [0.54] [4.42]*** [1.95]* [3.57]*** [2.47]** [0.62]
Observations 47 35 36 41 41 35 35 22 22 31 31
R2 0.09 0.57 0.52 0.22 0.48 0.01 0.54 0.28 0.77 0.17 0.6
Notes: Figures in parentheses are absolute t-statistics; omitted region is Africa.
The public expenditure on education, 1970 and public expenditure on health, 1960 are highly correlated (0.7). The results are much stronger if separate
components of the index are used. In the case of life expectancy, the public expenditure on education and the Gini coefficient are strongly significant across
all specifications (because of a larger number of observations).
*
Significance at 10% level.
**
Significance at 5% level.
***
Significance at 1% level.

The regional dummies confirm that the strength of these links
is much lower in Africa, where AIDS and institutional weak-
nesses have had large impacts. 25
In summary, we find a strong relationship on average be-
tween early EG and later HD. We use deviations from this
average to measure country-specific strengths of the relation-
ship from EG to HD, which are strongly influenced by the dis-
tribution of income and social expenditure ratios.
4.3 Virtuous, vicious, and lopsided: implications for
long term patterns
This section brings together our empirical results to under-
stand the implications for long term EG and HD and for pol-
icy. We do this in two ways. First, we discuss evidence for the
sequencing hypothesis. Second, we examine how the two sep-
arate processes in Figure 1 reinforce each other.
518 WORLD DEVELOPMENT

The sequencing hypothesis states that HD upgrading early
is essential for greater subsequent EG, as earlier shown in
Figure 3. Figure 6 shows the relationship between the EG
to HD index and late EG over 1980–2001. We can see that
the strength of this EG to HD relationship correlates
strongly with late EG, keeping in mind that the index is inde-
pendent of early growth by construction so that the relation-
ship in Figure 6 cannot be mechanical but indicates that high
HD and EG are mutually reinforcing. The correlation coeffi-
cient between the index and late EG is 0.425 (p-value of
0.001).
The sequencing hypothesis goes further to state that sus-
tained EG cannot be achieved without increases in HD that
are at least simultaneous. The lack of data points below the fit-
ted regression line in Figure 6 supports this, that is, there are
almost no countries that have high later growth given a weak
EG to HD chain. In summary, improved growth does lead to
improved HD, yet strong long run growth without accompa-
nying strong HD improvements does not yield sustained EG.
We now consider how the two estimated relationships rein-
force each other in generating vicious, virtuous, or lopsided
outcomes. Note that the measures developed above only cap-
ture the strengths of changes in the relationships over the sam-
ple period and do not incorporate any information on the
levels of HD or EG.
First, we simply plot these two measures against each other
(see Figure 7). This allows us to see which countries have
strong, positive, and mutually reinforcing HD to EG and
EG to HD links, countries we expect to be in a virtuous cycle.
Similarly, we can see which countries have links that would
lead them to poor HD–EG outcomes. Korea, Chile, and Sri
Lanka have strong positive links in both chains so we would
expect them to reach a virtuous cycle. A number of African
countries score rather low on both measures; we would expect
them to continue to be in a vicious cycle unless there is a
change in policy. Many East Asian countries and a few in La-
tin America have strong positive links in both chains. In fact,
outside these two regions, only Turkey, Egypt, and Sri Lanka

Figure 6. Relation between index and late EG.

Figure 7. Predicting long term outcomes.

 PATHS TO SUCCESS: THE RELATIONSHIP BETWEEN HUMAN DEVELOPMENT AND ECONOMIC GROWTH
are estimated to have strong positive dual links that would
push them toward a virtuous cycle.
Finally, there is a larger representation of countries in the
EG-lopsided quadrant in Figure 7, relative to Figure 2. As
emphasized, the measures in Figure 7 have discarded the infor-
mation on levels by construction. If achieving sustained high
EG requires not just strong positive links in both relation-
ships, but also a minimum level of HD, then the plot will
not reflect this. Figure 7 should therefore not be expected to
replicate exactly the realized outcomes in Figure 2. We should
view the “predictions” of Figure 7 as illustrating the likely fu-
ture paths of these countries, as well as the comparative
strengths and weaknesses of their HD to EG and EG to HD
relationship. 26 Strong HD to EG links without accompanying
strong EG to HD links imply that high EG is not sustainable.
Therefore, the countries in the lower right-hand quadrant
would be expected to experience high EG only for a temporary
period at best. Figure 7 therefore identifies countries with EG-
centric policy mixes that would be well served by giving prior-
ity to enhancing their HD infrastructure.
5. CONCLUSIONS
We have analyzed the two-way linkages between HD and
EG, taking into account that HD is not just an end product
of human activity, but also an input into development. Educa-
tion, health, and other aspects of HD involve fixed costs that
can create non-convexities in the social returns to various lev-
els of HD, and may result in low or high level equilibria. The
focus here is on how to move from a low to a high level equi-
librium. We hypothesized that upgrading HD early is essential
for higher subsequent EG and that improved EG, in turn,
leads to improved HD. Therefore, strong long-run growth
without accompanying HD improvements may not yield sta-
ble equilibria.
We tested this hypothesis by presenting analytical frame-
works to measure the strength of the two chains, net of fixed
effects and/or initial conditions and history. By relying on pa-
nel data, we were able to depart from simple cross-sectional
correlations. In the case of the HD to EG relationship, we
developed the notion of country-specific growth trajectories
which are defined as the trend change in growth in each
NOTES
1. We focus on HD as measured by infant mortality, life expectancy, and
secondary school enrollment rates.
2. This threshold-type framework of Azariadis and Drazen is not entirely
new. Like its contemporary counterpart, Murphy, Schleifer, and Vishny
(1989), it is a version of the “Big Push” ideas of Nurkse (1953) and
Rosenstein-Rodan (1943). Critiques of this included Hirshman (1958) and
Rostow (1960).
3. There is a literature looking at interactions between health and
education and EG (Miguel, 2005; Ram & Schultz, 1979) and on the role of
health generally (Schultz, 2005). There is also a literature linking nutrition
to EG (Alderman, Behrman, & Hoddinott, 2005; Behrman & Deolalikar,
1988; Schultz, 1997; Strauss & Thomas, 1998).
4. RSR refer to this two-way relationship in terms of the chains that link
HD and EG. They call the links that connect EG to HD Chain A and
those that connect HD to EG Chain B.
519
country, conditional on country-specific fixed effects. For
the case of the EG to HD relation, we studied the dynamics
of HD and EG to estimate a measure for each country that
indicates a particularly successful translation of growth into
HD. Here, the relative strength of this relationship for each
country was defined by the deviations from the overall
cross-country relationship between early average economic
growth and later improvements in HD and so netted out
the influence that initial growth had on later HD improve-
ments.
We also explored factors explaining variations across coun-
tries in these measures. In the case of the HD to EG relation,
the levels of HD and, to a lesser extent, the changes in HD and
changes in investment are significant and important contribut-
ing factors to the growth trajectory. In the case of the EG to
HD relation, we found that social expenditure ratios and in-
come distribution are significant. In both cases, we relied on
fixed effects in the levels of the variables to capture other fac-
tors that are unobserved, such as the quality of the institu-
tional and policy environment. 27
We combined these two analyses to understand the dynamic
interactions between HD and EG and the implications for sus-
tained growth. We found that HD levels are important for
determining growth trajectories and that policies to improve
HD must precede or at least complement growth-oriented pol-
icies if growth is to be accelerated and sustainable. Structuring
policy to produce strong HD is therefore a necessary condition
for tipping an economy toward a virtuous cycle. These find-
ings are consistent with a threshold-type growth model and
certainly contradict the view that investments in HD may be
postponed until economic resource expansion makes them
affordable.
Finally, while putting early emphasis on HD is clearly
important, this does not tell us why some countries actually
prioritize HD and others do not. This is likely due to a com-
bination of initial institutions and subsequent policy, which
are outside of the scope of this paper. It should be noted, how-
ever, that any aspect of institutions or policy that is fixed over
time is accounted for in our analysis by means of country
fixed effects. Institutions and policies that change HD can
be seen as part of the HD improvement process and are
therefore included in our country specific measures of chain
strength.
5. These are empirically confirmed in Barro (1991), Bourguignon and
Morrisson (1990), Levine and Renelt (1992), and Ranis (1984), among
others.
6. In terms of an econometric model, this implies that the strength of
specific links would be heterogeneous across countries and across stages of
development. Insufficient data prevent us from adopting this approach.
Purely statistical approaches to this are explored in Durlauf and Johnson
(1995) and Pesaran and Smith (1995).
7. The appendix provides a list of data sources and the list of countries
included.
8. We do not use the Human Development Index as it includes an
income indicator, which mixes aspects of both chains.
9. Gross primary enrollments are near 100% for most of our countries by
the end of the sample period. Tertiary enrollments are mostly quite low
and less reliable.
520 WORLD DEVELOPMENT
10. For countries near the boundaries, percentage changes are small
(underestimates HD improvements), but shortfall reductions can be large.
Conversely, shortfall reductions give little credit to HD improvements at
low levels.
11. Figure 2 and Table 1 look similar for life expectancy or secondary
school enrollment (withheld for space reasons).
12. Clearer versions of these transitions (separately by region) are posted
as a web appendix on the first author’s website.
13. See Hausmann, Pritchett, and Rodrik (2005) and Jones and Olken
(2008) for a similar approach, developed independently. Our idea for the
growth trajectories derives from the literature on hierarchical linear
modeling (see Raudenbush & Bryk, 2001).
14. Andrews (1993) and Perron (1989) provide statistical tools to test for
trend breaks, which require lengthy time series to have decent power.
Alternatively, if we had precise formulations of the dynamics, we could
estimate country-specific VARs linking HD and EG. Hausmann et al.
(2005) and Jones and Olken (2008) use trend-break tests.
15. The “plateaus” for a threshold model could lie along an upward
sloping path, but this is compatible with our approach.
16. An alternative to OLS country by country would be to include a
country fixed effect interacted with a time trend and lagged output and test
equality of the coefficients. When implemented, we reject the null that the
country coefficients are jointly equal to zero (F-test p-value is 0.0003). The
estimated bi’s are statistically different from zero for 71% of countries.
17. Specific theoretical models would have different implications for the
importance of HD levels and changes. The framework of Mankiw et al.
(1992) implies that levels of HD drive EG. Benhabib and Spiegel (1994)
find that the human capital stock interacted with the diffusion of
innovations (as in Nelson and Phelps (1966)) is significant. Uzawa–Lucas
endogenous growth models imply that HD changes drive sustained EG.
The Azariadis–Drazen threshold model implies that HD levels govern the
threshold at which an economy transits from one growth trend to another.
18. A one standard deviation increase in the growth of investment
increases growth by 1 percentage point over a decade. A one standard
deviation increase in the growth of exports increases growth by 0.5
percentage points over a decade. These effects are much less than those of
HD levels on growth. Using the terms of trade index gives similar results.
19. The number of observations changes across specifications in Table 4
due to data limitations. Restricting the sample for all specifications to
those where comprehensive data were available gave qualitatively similar
results.
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APPENDIX

The data come predominantly from the World Development Indicators (2003) (WDI) of The World Bank and the Human
Development Report (various issues) (HDR) of the UNDP. The WDI provides data on enrollment rates, infant mortality rates,
life expectancy, population, investment rates, and export rates. The data for the public expenditure on health and education in the
1960’s and the priority ratios come from the HDR. Throughout, real GDP at purchasing power parity (PPP) is used. This comes
from the Penn World Tables (the WDI does not have a long enough time series on this). The data on the Gini coefficient and the
poverty headcount come from the World Institute for Development Economics Research (WIDER) Income Inequality Database
(WIID), put together by Deininger and Squire, from which we use only the high quality data (as classified by WIDER). The coun-
try codes used in the figures are as follows:

Afghanistan AFG Egypt EGY Lesotho LSO Rwanda RWA

Algeria DZA El Salvador SLV Liberia LBR Saudi Arabia SAU
Angola AGO Eritrea ERI Libya LBY Senegal SEN
Argentina ARG Ethiopia ETH Madagascar MDG Sierra Leone SLE
Bangladesh BGD Gabon GAB Malawi MWI Singapore SGP
Benin BEN Gambia, The GMB Malaysia MYS Somalia SOM
Bolivia BOL Ghana GHA Mali MLI South Africa ZAF
Botswana BWA Guatemala GTM Mauritania MRT Sri Lanka LKA
Brazil BRA Guinea GIN Mauritius MUS Sudan SDN
Burkina Faso BFA Guinea-Bissau GNB Mexico MEX Syrian Arab Rep. SYR
Burundi BDI Haiti HTI Mongolia MNG Tanzania TZA
Cambodia KHM Honduras HND Morocco MAR Thailand THA
Cameroon CMR Hong Kong HKG Mozambique MOZ Togo TGO
Central African Rep. CAF India IND Myanmar MMR Trinidad & Tobago TTO
Chad TCD Indonesia IDN Namibia NAM Tunisia TUN
Chile CHL Iran, Islamic Rep. IRN Nepal NPL Turkey TUR
China CHN Iraq IRQ Niger NER Uganda UGA
Colombia COL Jamaica JAM Nigeria NGA UAE ARE
Congo, Dem. Rep. ZAR Jordan JOR Oman OMN Uruguay URY
Congo, Rep. COG Kenya KEN Pakistan PAK Venezuela, RB VEN
Costa Rica CRI Korea, Dem. Rep. PRK Panama PAN Vietnam VNM
Cote d’Ivoire CIV Korea, Republic KOR Papua New Guinea PNG Yemen, Rep. YEM
Cuba CUB Kuwait KWT Paraguay PRY Zambia ZMB
Dominican Rep. DOM Lao PDR LAO Peru PER Zimbabwe ZWE
Ecuador ECU Lebanon LBN Philippines PHL

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