Abstract. We investigate the interdependency of financial development and human capital on economic development in a cross-country setting. We show that the impacts exhibit interesting variations across different income levels. In fact, human capital is the most important element in fostering economic growth in high-income countries, but its importance falls with the country’s income level. Financial development, however, is relatively more important for mid-income countries but does not seem to have a significant impact on high-income nations. We find that lowincome countries do not benefit as much from either one of these factors.

Keywords: economic growth, economic development, human capital, financial development, panel data, non-stationary panels.