Rashmi Arora and Hossein Jalilian: Financial development, human capital and economic growth at the sub-national level: The Indian Case 69-83

Although at the national level the relationship between financial development, human capital and economic growth has received some attention, this is largely an under-researched area at the sub-national level. Human capital may impact economic growth through the channel of innovation and along with financial development could be complementary or substitute in their relationship to economic growth. Also, human capital investment, enabled by the financial sector development, not only affects growth but also directly and indirectly affects poverty reduction through the channel of growth. In this study we examine the interaction between financial development, human capital and economic growth at the sub-national level using panel datasets covering 23 states of India for the period 1999-2013. Our analysis suggests that there is evidence of positive relationship between human capital and financial development to economic growth.