Abstract:
Financial development and human capital are considered as key drivers in determining economic
growth, especially in the age of the new economy, technical revolution with digitalization and AI
implementation. Both these spheres are experienced new technologic challenges. Interdependency
between human capital, financial development and economic growth can lead to positive as well as
a negative vicious cycles for many countries. The present study explores the matchings between
the development of human capital and financial factor based on the data of low and lower middle income
countries. Our findings identified four models of these 52 countries: 1) the model of unsustainable
and catch-up growth; 2) the unrealized growth model; 3) the pushing out model of human capital;
4) the model of the vicious cycle of low growth and low rates of human development improvement
without adequate financial support. Most of the countries (60%) is belonging to the fourth group.
These are typical representatives of a negative vicious cycle when financial constraints form a negative
direct and indirect impact on economic and human potential, and vice versa. Given the significant
lag of payback period of investments in human development compared to other types of capital, and,
consequently, low policy initiatives for relevant investments, this situation is an extremely difficult
task. The findings of our research corroborate the importance of policy impact on the efficiency of
educational and health measures. Such measures should be accompanied by the development of
the financial sector through widening access to capital financial services, improving financial literacy.
