Strategic Financial Management of Human Capital Investments and Economic Growth: Evidence from Developing Countries

This study examines the influence of strategic financial management of human capital investments and their contribution on macroeconomic performance, proxied by GDP per capita growth. While human capital is widely recognized as a key driver of productivity and competitiveness, empirical evidence linking financial strategy to workforce investment remains limited. This study uses panel data from 80 developing countries over the period 2005-2022, sourced from the World Bank’s World Development Indicators (WDI). Due to data availability constraints, the panel is unbalanced. The analysis employs pooled Ordinary Least Squares (OLS), Fixed Effects (FE), and system Generalized Method of Moments (GMM) estimators to account for heterogeneity and endogeneity. Rather than merely defining concepts, this study situates human capital investment within a strategic financial framework, emphasizing its role in resource allocation and long-term growth dynamics. The results indicate that human capital investment has a positive and statistically significant effect on economic growth. Education expenditure exhibits a substantial contribution compared to health expenditure. The findings remain robust across model specifications and diagnostic tests. The study concludes that integrating human capital investment into strategic financial planning enhances productivity and long-term economic performance. Policy implications emphasize increased and efficient allocation of financial resources toward education and workforce development. The study adds to the literature by integrating strategic financial management with human capital theory using a dynamic panel econometric approach. This study focuses on macroeconomic outcomes rather than firm-level performance, with GDP per capita growth serving as the primary indicator of economic performance.