2021. December 07. 11:00

Focus on human capital and economic development - The Latest 2021/4 Issue of the Public Finance Quarterly has been published

The focus of the new issue is on the human capital and the economic development. In our focus studies we can get to know the relationship between the estimated value of human capital in terms of school years completed and economic growth, as well as the tax and support instruments that the Slovak government uses to promote childbearing and parenting. In our studies we present the history of real convergence, the impact of COVID-19 on the cryptocurrency market, as well as the intergovernmental fiscal equalisation models in Zimbabwe. Dynamic effects of corruption on general government final consumption expenditure as well as the relationship of Chinese Foreign Direct Investment (CFDI) under the China-Pakistan Economic Corridor (CPEC) and commercial bank performance in Pakistan is also on the table in our latest issue. 

The studies published in this issue can be viewed and downloaded here

FOCUS – Human Capital and Economic Development

Using data from 2014 to 2019, Ilona Ida Balog examines the relationship between the estimated value of human capital in terms of the average number of school years completed and economic growth in individual European countries. Data from this period show a negative coefficient for schooling years. In eastern countries in the analysis economic growth is generally higher than in Western-European countries. Economic growth in Hungary is higher than the estimated value explained by the analysed variables. The negative coefficient means that human capital measured by the number of schooling years does not accelerate economic growth any more, further reforms of the education systems are needed in order to use human capital more efficiently.

In their study Csaba Lentner and Zsolt Horbulák analyse the demographic context of Slovakia and present the tax and support instruments that the Slovak government uses to promote childbearing and parenting. The topic is an indirect attempt to justify the Hungarian demographic and population policy measures. Supported by empirical evidence, the authors find that Hungary, as a country with a similar level of development and in many respects similar to Slovakia, has been providing extensive tax and housing subsidies since the early 2010s. The study also analyses how women of childbearing age and families relate to these subsidies, as well as do they have an impact on the propensity to have children? The study shows that the Hungarian government's CSOK scheme and tax incentives are well received by young people, but that the promotion of childbearing depends on a number of factors beyond the financial incentives and subsidies. By analysing the situation in Slovakia, the authors also want to draw attention to the possible further development of the Hungarian system and other aspects of family formation.


Róbert Csoma in his work examines the history of real convergence. In the world economy real convergence cannot be detected in the long run and lack of convergence is discussed in this article. The analysis is based on results and debates of economic growth theory and development studies. Special focus is on extraction dependent and tax haven countries and the article concludes, these countries considerably contribute to the partial real convergence process, limited only to some regions of the world economy.  The article also searches some common criteria of the catching-up process of emerging countries to developed economies. It finds, although factors of catching-up can be very unique in countries at different development levels but still, some factors can be mentioned, without them catching-up is hardly feasible nowadays in any country

Serkan Samut and Rahmi Yamak investigate whether the Covid-19 pandemic, which started to affect the world in early 2020, influenced the relationship between return volatility and trading volume in the cryptocurrency market. In the empirical part of the study, 40 cryptocurrencies were included in the analysis. The data were divided into two separate periods as before and during the pandemic. Two alternative estimators developed by Garman and Klass (1980) and by Rogers and Satchell (1991) were used to measure the return volatility of cryptocurrencies. With causality and simultaneous correlation analyses, it was determined that the sequential information arrival hypothesis was valid in the cryptocurrency market in the pre-pandemic period. In the pandemic period, the sequential information arrival hypothesis lost its effect and left its place to the mixture of distribution hypothesis.

The paper by Vincent Chakunda, Dzingirai Canicio and Chikerema Arthur models the intergovernmental fiscal equalisation in Zimbabwe, as well as present methods how to resolve vertical and horizontal fiscal imbalances. On the backdrop of observed vertical and horizontal fiscal inequalities in both developed and developing economies across the globe, the study provides a model for intergovernmental fiscal equalisation. The thrust of the model is to equalize vertically and horizontally in order to resolve fiscal imbalances between the three tiers of government and in the process improve the capacity among different sub-national governments to provide services at comparable tax levels and expenditure needs. The fiscal capacity model, as the authors have proposed, is underpinned by five variables, namely, total amount to be allocated as declared in the national budget, poverty index (poverty prevalence rate), population of the area, size of the local economy (revenue/GDP ratio) and the estimated intrinsic value of the sub-soil natural resource endowments of the area.

Emin Efecan Aktas examines the dynamic effects of corruption on general government final consumption expenditure via evidence from OECD countries. Public expenditures, which are among these macroeconomic indicators, are one of the fiscal policy tools and their size and amount can be alternated by policymakers who gain an advantage from corruption. In this respect, the effect of corruption on the government final consumption expenditure is interrogated by System Generalized Methods of Moment panel data analysis in this study. Using four different corruption indexes in terms of robustness check, and forecasting covering the 2002-2018 period for 37 OECD countries the findings show that the corruption indexes in 3 models are significantly and positively related to public expenditures, while the other corruption index is positively but insignificantly correlated. These results are in line with the literature and confirm the common view that corruption increases public spending.

Sabeeh Ullah, Zia Muhammad and Rauf Gul empirically examine the relationship of Chinese Foreign Direct Investment (CFDI) under the China-Pakistan Economic Corridor (CPEC) and commercial bank performance in Pakistan, thereby highlighting the un-explored area of the existing literature. For this purpose, a panel dataset over the period 2009 to 2020 of commercial banks was collected from the State Bank of Pakistan. The authors employ various econometric techniques including random effect and system Generalized Method of Movement (Sys-GMM). To more accurately analyse the relationship between CFDI and bank performance, the study also separately considers the pre-CPEC period 2009-2013, and the post-CPEC period 2014 to 2020. The results indicate a significant positive impact of Chinese FDI on the banking performance in Pakistan in full as well as in Pre-CPEC samples, while negatively significant with banking performance in Post-CPEC samples. For the control variables, the authors found some variations in signs and significance across the various bank performance measures and the three samples.