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Abstract

Objective: This study aims to uncover the long-term relationship and dynamics between local innovation, economic growth, and human capital quality in emerging markets and developing economies.
Methodology: The study employed Panel Distributed Lag Autoregressive (ARDL) and Nonlinear Autoregressive (NARDL) model frameworks for data analysis. The Human Capital Quality Index (HCQI) was developed over time (from 2015 to the present) for 52 countries, demonstrating a long-term and short-term asymmetric cointegration relationship between these data, exhibiting both symmetrical and asymmetrical patterns across different periods and within their respective sample intervals.
Results: The results revealed explanatory threshold effects, indicating that the optimization benefits of the HCQI only begin once it reaches a value exceeding 0.65. While these same improvements achieve marginal returns below that threshold (i.e., ``diminishing returns''), they also exhibit asymmetric effects, where lower quality education has a more detrimental impact on innovation than comparable progress. The findings provide a clear roadmap for escaping the middle-income trap by outlining a two-stage development path for emerging markets and developing economies, emphasizing that foundational investments in cognitive skills are essential for realizing returns on technology investment.

Keywords

Human capital quality, Innovation, Economic growth, Panel ARDL, Threshold effects, Asymmetric cointegration, Emerging economies

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