Does Human Capital Development Reduce Poverty in Sub-Saharan African: New Insights from Driscoll-Kraay Standard Errors Approach
Keywords:
Human capital development, Poverty reduction, Principal Component Analysis (PCA), Foreign Direct Investment (FDI), Sub-Saharan Africa (SSA), Driscoll-Kraay Standard ErrorsAbstract
Despite years of economic liberalisation, global integration, and regional reforms, poverty remains one of the greatest challenges in Sub-Saharan countries. With countries in the region accounting for more than half of the world’s extremely poor, understanding human capital development’s role in tackling poverty is increasingly crucial. Hence, this study aims to investigate whether human capital development reduces poverty in Sub-Saharan Africa using yearly data spanning 2000-2024 for 30 countries. Two indices of human capital development were constructed from six variables using the principal component analysis (PCA). To address potential bias associated with omitted variables, the empirical model incorporates several important variables, including foreign direct investment, rule of law, economic growth, population, exchange rate, and employment. The Driscoll-Kraay standard errors estimator was employed to perform the data analysis. The findings show that broad-based human capital development reduces poverty significantly, but secondary-based human capital development significantly increases poverty. Economic growth, foreign direct investment, employment, and exchange rate have a significant negative effect on poverty. In contrast, population has a significant positive influence on poverty. Similarly, the effect of the rule of law on poverty is positive; however, it is not statistically significant. The findings are robust to a robustness check. It is thus concluded that human capital development is indispensable for tackling poverty in Sub-Saharan Africa; however, its effectiveness depends on policy coherence, robust institutional support, and human development quality. Enhancing the inflow of foreign investment, effective population management, job promotion creation, improving governance, and strengthening health and education systems are necessary for optimising the human capital development effectiveness in addressing poverty in Sub-Saharan Africa.
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