Beyond Physical Capital Accumulation: Does Human Capital Reduce the Reliance on Infrastructure in ASEAN-5?

Abstract

This study investigates the nonlinear interaction between physical and human capital on economic growth across ASEAN-5 economies (Indonesia, Malaysia, the Philippines, Thailand, and Vietnam). Challenging the conventional capital-skill complementarity hypothesis, this research utilizes a macro-panel dataset (2000–2019) and employs the Fixed Effects estimator with Driscoll–Kraay standard errors to address cross-sectional dependence. The empirical results reveal a statistically significant negative interaction between mean-centered physical and human capital (β₄ = −1.152, p < 0.001). This indicates that as human capital levels rise above their sample mean, the marginal impact of physical capital accumulation diminishes – from 0.536 at the 10th percentile of HCI to 0.250 at the 90th percentile – providing evidence of structural transformation from investment-driven to efficiency-driven growth. The marginal effect remains positive throughout the observed range but declines monotonically. These findings imply that avoiding the Middle-Income Trap requires policymakers to pivot from “hard” infrastructure accumulation to “soft” infrastructure investments and synchronize industrial upgrading with workforce education.