INSTITUTIONAL CONSTRAINTS OF HUMAN CAPITAL IN TRANSITION ECONOMIES: WHEN EDUCATION DOES NOT GENERATE GROWTH?
Keywords:
human capital, institutions, economic growth, education–labour market mismatch, brain drain, innovation, productivity, transition economies, Western Balkans, Serbia.
Abstract
This paper analyzes the relationship between education, institutions, and economic growth, with a particular focus on the problem of the mismatch between the accumulation of human capital and the institutional framework governing its utilization. Although a significant body of literature emphasizes the positive role of education in promoting economic development, empirical findings indicate that this relationship is neither universal nor linear. Countries with similar levels of educational attainment often achieve different development outcomes. Drawing on the institutional approach, this paper argues that institutions act as a filter that determines how human capital is utilized and allocated. In the absence of high-quality institutions, education does not necessarily lead to increased productivity but may instead result in the inefficient allocation of resources. This paper develops a conceptual model of the conditional effect and is based on an analysis of existing empirical findings. The results indicate that education has a significant positive impact on growth primarily in countries with high institutional quality, whereas this effect is limited within weaker institutional frameworks. The paper’s particular contribution lies in the integration of human capital theory and institutional economics, as well as in emphasizing the conditional nature of education as a factor of economic growth.
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2. Acemoglu, D., Johnson, S., & Robinson, J. A. (2005). Institutions as a Fundamental Cause of Long-Run Growth. In: Handbook of Economic Growth, P. Aghion & S. Durlauf (Eds.), edition 1, volume 1, chapter 6, pp. 385-472, Amsterdam: Elsevier.
3. Acemoglu, D., & Robinson, J. A. (2012). Why Nations Fail – The Origins of Power, Prosperity, and Poverty. London: Profile Books.
4. Amsden, A. H. (1989). Asia’s Next Giant – South Korea and Late Industrialization. New York: Oxford University Press.
5. Autor, D. H. (2014). Skills, education, and the rise of earnings inequality among the “other 99 percent”. Science, 344(6186), 843-851.
6. Bartlett, W., Uvalić, M., Durazzi, N., Monastiriotis, V., & Sene, T. (2016). From University to Employment: Higher Education Provision and Labour Market Needs in the Western Balkans. Luxembourg: European Commission.
7. Bartlett, W., & Uvalić, M. (2018). Higher education and the graduate labour market in the Western Balkans. In: Western Balkan Economies in Transition: Recent Economic and Social Developments, Osbild, R. and Bartlett, W. (eds.), Springer, pp. 47-60.
8. Bartlett, W. (2013). Structural Unemployment in the Western Balkans: Challenges for Skills Anticipation and Matching Policies. European Planning Studies, 21(6), 890-908.
9. Becker, G. S. (1993). Human Capital – A Theoretical and Empirical Analysis, with Special Reference to Education. Third Edition. Chicago and London: The University of Chicago Press.
10. Brown, P., Lauder, H., & Cheung, S. Y. (2020). The Death of Human Capital? Its Failed Promise and How to Renew It in an Age of Disruption. New York: Oxford University Press.
11. Busemeyer, M. R., & Trampusch, C. (eds). (2012). The Political Economy of Collective Skill Formation. New York: Oxford University Press.
12. Cappelli, P. (2014). Skill Gaps, Skill Shortages and Skill Mismatches: Evidence for the US. NBER Working Paper Series, Working Paper 20382, 1-67.
13. Collins, R. (2019). The Credential Society – An Historical Sociology of Education and Stratification. New York: Columbia University Press.
14. Docquier, F., & Rapoport, H. (2011). Globalization, Brain Drain, and Development. Discussion Paper Series, Discussion Paper No. 5590, The Institute for the Study of Labor (IZA) in Bonn, pp. 1-62.
15. European Commission. (2024). European Innovation Scoreboard 2024: Serbia Country Profile.
16. European Training Foundation (ETF). (2022). “Use It or lose It” – How do migration, human capital and labour market interact in the Western Balkans? Report drafted by Isilda Mara and Michael Landesmann for the European Training Foundation, under the supervision of the Vienna Institute for International Economic Studies (wiiw).
17. Foundation for European Progressive Studies (FEPS). (2024). Labour Migration in the Western Balkans – Consequences for the Region’s Democratic Life. Policy Brief.
18. Grzymala-Busse, A. (2007). Rebuilding Leviathan – Party Competition and State Exploitation in Post-Communist Democracies. New York: Cambridge University Press.
19. Hall, P. A., & Soskice, D. (eds). (2001). Varieties of Capitalism – The Institutional Foundations of Comparative Advantage. New York: Oxford University Press.
20. Hall, R. E., & Jones, C. I. (1999). Why Do Some Countries Produce So Much More Ouptup Per Worker Than Others? The Quarterly Journal of Economics, 114(1), 83-116.
21. Hanushek, E. A., & Woessmann, L. (2021). Education and Economic Growth. In: The Economics of Education, Second Edition, S. Bradley & C. Green (Eds.), pp. 171–210. London: Academic Press.
22. Hellman, J. S., Jones, G., & Kaufmann, D. (2000). “Seize the State, Seize the Day” – State Capture, Corruption, and Influence in Transition. World Bank Policy Research Working Paper No. 2444., 1-50.
23. Lucas, R. E. Jr. (1988). On the Mechanics of Economic Development. Journal of Monetary Economics, 22, 3-42.
24. McGuinness, S., Pouliakas, K., & Redmond, P. (2018). Skills Mismatch: Concepts, Measurement, and Policy Approaches. Journal of Economic Survey, 00(0), 1-31.
25. McGuinness, S. (2006). Overeducation in the Labour Market. Journal of Economic Surveys, 20(3), 387-418.
26. Meyer, J.-B., Kaplan, D., & Charum, J. (2001). Scientific Nomadism and the New Geopolitics of Knowledge. International Social Science Journal, 53, 309-321.
27. Murphy, K. M., Shleifer, A., & Vishny, R. W. (1991). The Allocation of Talent: Implications for Growth. The Quarterly Journal of Economics, 106(2), 503-530.
28. North, D. C. (1990). Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press.
29. OECD (2022). Education at a Glance 2022: OECD Indicators. Paris: OECD Publishing.
30. OECD. (2023). Education at a Glance 2023. Paris: OECD Publishing.
31. OECD. (2025). Economic Convergence Scoreboard for the Western Balkans 2025. Paris: OECD Publishing.
32. OECD. (2025a). Education Attainment. OECD Education GPS. https://www.oecd.org/en/topics/sub-issues/education-attainment.html?utm (Accessed, 30.05.2026.)
33. Pritchett, L. (2001). Where Has All the Education Gone? The World Bank Economic Review, 15(3), 367-391.
34. Rodrik, D., Subramanian, A., & Trebbi, F. (2004). Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development. Journal of Economic Growth, 9(2), 131-165.
35. Rodrik, D. (2007). One Economics – Many Recipes: Globalization, Institutions, and Economic Growth. New Jersey: Princeton University Press.
36. Romer, P. M. (1990). Endogenous Technological Change. The Journal of Political Economy, 98(5), Part 2: The Problem of Development: A Conference of the Institute for the Study of Free Enterprise Systems), S71-S102.
37. Schiff, M., & Docquier, F. (2016). Institutional impact of brain drain, human capital, and inequality: a political economic analysis. Latin American Journal of Economics, 53(1), 95-110.
38. Schultz, T. W. (1961). Investment in Human Capital. The American Economic Review, 51(1), 1-17.
39. Stančetić, V. (2020). Spoils System Is Not Dead: The Development and Effectiveness of the Merit System in Western Balkans. HKJU-CCPA, 20(3), 415-438.
40. Svejnar, J. (2002). Transition Economies: Performance and Challenges. Journal of Economic Perspectives, 16(1), 3-28.
41. World Bank (2026). Unlocking the Development Potential of Migration in the Western Balkans. https://www.worldbank.org/en/region/eca/publication/unlocking-the-development-potential-of-migration-in-the-western-balkans (Accessed, 30.05.2026.)
42. World Bank. (2023). Worldwide Governance Indicators (WGI).
43. World Intellectual Property Organization (WIPO). (2024). Global Innovation Index 2024. Geneva: WIPO.
44. World Intellectual Property Organization (WIPO). (2025). Global Innovation Index 2025. Geneva: WIPO.