Public Investment in Human Capital: The Path to Sustainable and Inclusive Economic Growth

Aziz Wahyu Suprayitno (Directorate General of Budget, Ministry of Finance, Jakarta, Indonesia)
I Gede Putu Dharma Yusa (Directorate of Expenditure Accounts, BPS-Statistics Indonesia, Jakarta, Indonesia)
Faiz Abdullah Wafi (The North Java Coast Management Authority (BOPPJ), Jakarta, Indonesia)

Indonesian Treasury Review: Jurnal Perbendaharaan, Keuangan Negara dan Kebijakan Publik
Vol. 11 No. 2 (2026): Indonesian Treasury Review: Jurnal Perbendaharaan, Keuangan Negara dan Kebijak

Research Originality – This study contributes to the literature by examining the dynamic mechanisms through which public investment in human capital shapes economic growth outcomes. Unlike previous studies, it evaluates economic growth through the dimensions of sustainability and inclusiveness. It also identifies regional heterogeneity in the human capital–growth nexus by comparing provinces in Java and non-Java regions. Research Objectives – This study examines the effects of mean years of schooling and life expectancy at birth on sustainable and inclusive economic growth across 33 Indonesian provinces from 2005 to 2023. It also assesses the impact of government spending on education and health on these human capital indicators. Research Methods – The analysis is based on an endogenous growth model that emphasizes the role of human capital in promoting sustainable and inclusive economic growth. To address the endogeneity issue, this study employs dynamic panel data regression using the Generalized Method of Moments (GMM) technique. Empirical Results – The empirical results show that mean years of schooling and life expectancy at birth have a positive and significant effect on sustainable and inclusive economic growth. Life expectancy at birth has a stronger impact than mean years of schooling. Furthermore, public investment in education and health has a substantial effect on increasing mean years of schooling and life expectancy at birth. This indicates that public investment in education and health contributes positively to sustainable and inclusive economic growth through improvements in the quality of human capital. The Java vs. non-Java subsample analysis further reveals that the growth effects of human capital are not spatially uniform across Indonesian provinces. Implications – These findings underscore the importance of equitable and sustained public investment in education and health, particularly in non-Java regions, to maximize the growth-enhancing and inequality-reducing potential of human capital development.