Financial Development and Human Capital in South Africa: A Time-Series Approach

Abstract

This is a time-series study that investigates the relationship between human capital and financial development in South Africa for the period of 1965-2005. The paper uses four measures each for both financial development and human capital. With M2 as financial indicator, the results suggest two possible directions of causality, one from human capital to financial development, and evidence of reverse causality for different measures of human capital.

With liquid liability as financial indicator, it suggests one-way directional causality from human capital to financial development. Summarily, the results suggest evidence of bi-directional causality, and that income is a possible transmission mechanism.