Socio-Economic Determinants of Labor Productivity in Developed and Developing Countries
DOI:
https://doi.org/10.54938/ijemdss.2026.05.4.785Keywords:
Labor productivity, Human capital, Financial development, Trade openness, Income inequalityAbstract
This study empirically examines the determinants of labor productivity (GDP per worker) among a balanced panel of 24 developing and 22 developed countries over the period of 1990-2024. Adopting comprehensive panel framework, including Random Effects (GLS), Fixed Effects, cross sectional- dependence tests, second generation unit root test, Westerlund cointegration analysis, long run estimates (FMOLS/DOLS) and Dumitrescu-Hurlin causality for ensuring robustness and eliminate endogeneity. Descriptive statistics reveal significant productivity lags between developed and developing countries with a vital difference in human capital, and structural capabilities. Long run analysis reveals that Life expectancy and gross capital formation significantly positive effect on productivity in both panel groups while gross capital formation shows strong positive effect on productivity in developed countries. Financial development reveals a key role for developing countries, whereas income inequality negatively effects, particularly in developing countries. Pupil-teacher ratio statistically effects productivity for developed countries, whereas the trade openness identifies the minimal long-term effect. The findings of cointegration and causality validate a sustainable long-run relation and bidirectional and unidirectional dynamics between variables. Generally, role of productivity growth is formed by human capital, income inequality and structural changes. The study suggests that policy systems focus on the context specific: enhance financial inclusion and promoting equality in developing countries while reinforcing human capital development and capital efficiency in the developed countries.
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Copyright (c) 2026 Saima Shakeela, Sadia Ali, Muhammad Rizwan Yaseen, Muhammad Faraz Riaz
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