830557

research-article20192019
SGOXXX10.1177/2158244019830557SAGE OpenAsadullah

Original Research

SAGE Open

Quadratic Indirect Effect of National

January-March 2019: 1­–13
© The Author(s) 2019
DOI: 10.1177/2158244019830557
https://doi.org/10.1177/2158244019830557

TVET Expenditure on Economic Growth journals.sagepub.com/home/sgo

Through Social Inclusion Indicators

Muhammad Ali Asadullah1

Abstract
The recent movement of social-investment state encouraged national educational initiatives taken by the policy makers
of developed countries to enhance individual’s social inclusion for national economic gains. Benefiting from human capital
theory, the author has reexamined the indirect effect of nation expenditure of technical and vocational education and training
(TVET) on economic growth through social inclusion by isolating the effective key social inclusion dimensions (employment,
earnings, and multidimensional poverty) from each other. A 15-year data set, ranging from 2000 to 2014, collected from
Organisation for Economic Co-operation and Development (OECD) database of 21 OECD member European countries
was used for hypotheses testing. The statistical results obtained through the quadratic indirect effects demonstrate clear
support for the entire hypotheses. However, the results demonstrate that the indirect effects decrease as the values of TVET
expenditure increases, particularly, when the indirect effect is investigated through the wages or when the overall index
value of social inclusion indicators is introduced as a mediator. The study offers some implications for the researchers and
the policy makers who are interested in determining the overall effectiveness of human capital development initiatives in the
welfare-state/social-investment states.

Keywords
economic growth, employment, social inclusion, technical and vocational education and training (TVET), wages,
multidimensional poverty

Introduction not sufficient from the human capital development rather

The global economies have been facing the issue of aging
population and labor shortages for a long time, but the recent
financial crisis hampered further economic growth due to
increasing unemployment, inequality, poverty, low job cre-
ation, and restricted immigration policies to protect local
jobs (Cerna, 2018). The Organisation for Economic
Co-operation and Development (OECD) statistics indicate
an increasing gap in the wages and rising inequality in the
household income in majority of OECD countries for past
three decades (OECD, December 2014; Maclean, 2017). In
addition, the recent migration and refugee crisis in Europe,
resulting from the war and insecurity in the Middle East,
Africa, and Southern Asia (Allen et al., 2018; Niemann &
Zaun, 2018) boosted inequality and poverty across immi-
grant and refugee class (Eugster, 2018). Eugster (2018)
found that regulatory institutions are more successful in
reducing the poverty of the immigrants in countries where
the immigrants have a greater access to the employment and
social benefits. A recent blog on world economic forum
highlighted that policies to reform education for youth are
there is a continuous need for up-skilling the current work-
force as well.1
These increasingly serious challenges led the researchers
to revisit the impact of education on national human capital
(Leuven & Oosterbeek, 2011; Quintini, 2011) for helping the
governments to find the remedies of rising unemployment at
the lowest cost (Pilz, 2012). To cope with these challenges,
an increasing association between the rising unemployment
and the technical and vocational education and training
(TVET; López-Fogués, 2012; McGrath & Lugg, 2012) has
been observed in OECD countries (López-Fogués, 2018).
Particularly, there was an increase in national spending on
TVET due to increasing emphasis of international governing
bodies including UNESCO and World Bank, for alleviating
1
Emirates College of Technology, Abu Dhabi, United Arab Emirates
Corresponding Author:
Muhammad Ali Asadullah, Emirates College of Technology, Millennium
Tower, Sheikh Hamdan Street, Opp. Hamdan Center, Abu Dhabi, United
Arab Emirates.
Email: muhammad.asadullah@ect.ac.ae

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2 SAGE Open
the poverty, inequality, and overall economic prosperity
(Comyn & Barnaart, 2010). Unfortunately, the national
TVET reforms remained limitedly effective for resolving
issues of skill development and social inclusion (Fleckenstein
& Lee, 2018) as a significant proportion of population, par-
ticularly, the youth is still experiencing social exclusion in
relation to education (Vandekinderen, Roets, Van Keer, &
Roose, 2018). Thus, there is a need for TVET sector that
facilitates the economies in fulfilling their skill gaps, enhanc-
ing community cohesion, and productivity (Hadawi &
Crabbe, 2018). Hadawi et al. stressed the need for a measure
that demonstrates the social value of TVET. One of such
measure that can effectively demonstrate the social value of
TVET investments is social inclusion. The question arises
about the extent to which the government spending on voca-
tional education and training (VET), in OECD member states
of European Union, has been effective in overcoming the
issue of social exclusion resulting from the increasing unem-
ployment, income inequality, and poverty and the overall
economic prosperity. The study aims at addressing this
research question by examining the mediating role of key
social inclusion dimensions (earning, employment, and pov-
erty) between national TVET spending and economic growth
in OECD member states of European Union.
This study has offered some theoretical contribution to
the existing stream of literature on TVET investment and
economic growth in certain ways. First, the debates about
the conventional view of the significance of human capital
in economic growth have augmented due to the limited and
controversial empirical evidence (Sunde & Vischer, 2015).
The existing literature on economic growth provides some
explanation about the contribution of human capital in eco-
nomic growth (by complimenting the factors of production;
Lucas, 1988a, 1988b; Solow, 1956), adopting new technolo-
gies (Nelson & Phelps, 1966) and augmenting innovation
(Aghion & Howitt, 2006; Hanushek & Woessmann, 2008;
Romer, 1990). However, there is still a need for the mecha-
nisms, which may explain the effect of human capital on
economic growth (Sunde & Vischer, 2015). The recent
movement of welfare state (Garritzmann, Busemeyer, &
Neimanns, 2018) or the social-investment state (Busemeyer,
de la Porte, Garritzmann, & Pavolini, 2018) reforms has
attracted the attention of researchers toward the concept of
social investment policies, which emphasize developing and
efficiently utilizing human capital to enhance their social
inclusion (Morel, Palier, & Palme, 2012). Particularly, the
researchers are attracted to empirically test the assumption
of educational policy reformists that education can serve as
a crucial driver for overall economic development by reduc-
ing poverty reduction and promoting social inclusion
(Mercer, 2014). Hence, considering social inclusion as a key
target of social-state policies, this study has introduced
social inclusion as a channel to empirically test how national
investment in TVET has contributed to the overall economic
development of some social-welfare OECD economies.
Here, we assimilate national TVET expenditure as a mecha-
nism of developing human capabilities, social inclusion as a
source of enhancing social capabilities of the individuals,
while economic growth as a source of enhancing overall
national economic capacity. While testing these assump-
tions, the current study has explained the power of educa-
tional investment in developing human capabilities to
enhance overall economic capacity of a nation through their
social capabilities including employability, earnings, and
poverty elimination.
Second, this study has contributed to the existing stream of
literature on TVET by investigating the distinct mediating
role of each social inclusion indicators that is, employment,
earnings, and multidimensional poverty index of a country
between national TVET expenditure and economic growth.
The empirical testing of these mediating mechanisms using
social indicators as separate explanatory account between
TVET and economic growth provides an empirical explana-
tion about the effectiveness of “Education Strategy 2020”
(Cobo, Zucchetti, & Rivas, 2011) of World Bank for its part-
ner countries pursuing social-welfare state policy. According
to this strategy, World Bank envisioned to set its priorities to
strengthen the education systems of its member countries.
The hypothesized relationships tested in the current study
provide an explanation about the extent to which the OECD
member countries have been able to achieve the learning goal
(target of becoming socially inclusive economies) by follow-
ing the vision of World Bank through TVET investment ini-
tiatives to achieve economic growth. Third, the existing
research on TVET has not provided sufficient empirical evi-
dence about the mediating role of each social inclusion indi-
cators separately between TVET and economic growth. This
is important for an important reason. Among the social inclu-
sion indicators used in the current study, poverty may have a
different explanatory role as compared with employment and
earnings. For instance, the increase in employment may ignite
the TVET and economic growth relationship, whereas pov-
erty may have opposite effect. Thus, extending our previous
work (Asadullah & Zafar, 2018) in which we used aggregate
scores to measure the social inclusion, a separate mediating
analysis provided more robust explanation for each indicator
separately. Thus, the current study has demonstrated an
empirical evidence related to the role of TVET expenditure in
economic growth through employment, earnings, and poverty
reduction (Figure 1) in 21 different OECD economies based
on 15 years.
Theoretical Framework
The government, which is responsible for developing human
resources at the national level, devises national educational
policies for workforce development to ensure coordination
of national resources for a strong economic system
(Wedchayanon & Chorkaew, 2014). This requires the gov-
ernments to treat people as a strategic asset, a strategy of
Asadullah 3
Figure 1.  Hypothetical framework.
national human resource development, to sustain competi-
tive advantage of an economy. The governments take invest-
ment decisions to satisfy this responsibility for developing
the skills of individuals, ensuring their employability to
avoid their disengagement/exclusion of population. An
effective national training system guarantees the national
human capital development by improving the skills, knowl-
edge, trust and cooperation, motivation, employability, and
productive industrial relations (Docherty, Forslin, & Shani,
2002). Among the national investment decisions for devel-
oping human resources, TVET has remained one of the most
prominent national training systems for developing national
human resources. TVET has a significant potential to facili-
tate governments in overcoming the social and economic
issues through various means.
The OECD countries developed a wide range of policies
to enhance the opportunities for both learning and gaining
work experiences (Vanhove, 2017), yet, skill development
through TVET still remained a proven way to enhance the
access of youth to the labor market (CEPAL, 2013). However,
mere skill development does not guarantee the economic
growth, rather, it requires policy makers to emphasize more
on job creation. Particularly, high-income OECD countries,
which are facing more of the issue of overeducation, need to
create employment opportunities for their overeducated and
highly skilled workers (Handel, Valerio, & Sánchez Puerta,
2016; McGuinness, Pouliakas, & Redmond, 2017).
This is challenging for policy makers to demonstrate the
value of national investment in TVET at the societal level for
their claim of building and upgrading the market-required
competencies, employability, financial benefits (wages), and
reducing inequality. Hadawi and Crabbe (2018) stressed the
need for a measure that demonstrates the social value of
TVET. One of such measure that can effectively demonstrate
the social value of TVET investments is social inclusion.
TVET facilitates the economies in fulfilling their skill gaps,
enhancing community cohesion and productivity (Hadawi &
Crabbe, 2018). The individuals of a society are highly likely
to experience economic and social disengagement, if the
education system does not facilitate in building the market-
based skill set of the individuals (Angel-Urdinola & Mayer
Gukovas, 2018). Particularly, the population not acquiring
any skill with education is more likely to experience disen-
gagement and exclusion. The term disengagement, which is
described by Angel-Urdinola & Mayer Gukovas as NEET
(neither in education, employment, or training) also brings
our attention toward the concept of social exclusion of indi-
viduals. This represents that the individuals are highly likely
to withdraw from the education if they do not find expected
benefits. Moreover, the individuals also stop working if their
wages are low, and hence the return on investment dimin-
ishes (Angel-Urdinola & Mayer Gukovas, 2018). Thus, a
timely investment in human capital formation is always criti-
cal for social inclusion of the citizens to reap the benefits
TVET at the social level over a long period. One of the key
hypothesis of the current study is to demonstrate the effec-
tiveness of national investment in TVET for social inclusion
of the individuals in a society using the human capital theory
for theoretical support of national human resource develop-
ment perspective.
The national educational reforms, which emphasize on
empowering TVET to develop the learning, competencies,
and qualifications of the citizens for addressing the changing
labor market requirements have strengthened the strategic
value of TVET. A greater financial investment in TVET at
national level enables the government to take such diverse
initiatives to improve and monitor the quality of TVET ini-
tiatives. A higher investment in TVET facilitates govern-
ments in diversifying the investment in human resource
development by introducing diverse type of TVEt alterna-
tives (like dual system of apprenticeships, competency-based
training, green initiatives) training and allows for a higher
involvement of stakeholders in the process of identifying
market required and competency-based training programs to
inject quality in TVET initiatives.
Human capital theory offers an economic justification to
the policy makers for promoting the participation of indi-
viduals in the education (Gale & Molla, 2015). Human
capital theory (Becker, 1962; Schultz, 1960, 1961) posits
that developing the skills, knowledge, and attitude of the
human capital facilitates them to find and retain appropriate
jobs. This prevents social exclusion and promotes the inclu-
sion of the educationally deprived individuals in the society
by providing the opportunity to integrate themselves into
the labor market (Dean, 2003; Vandekinderen et al., 2018).
According to the human capital theory, the learner, as a
human capital, is processed through vocational education
and training to actively shape the work and the society
(Bohne, Eicker, & Haseloff, 2017). The TVET systems pro-
vide the learner an opportunity to practice and learn, which
4 SAGE Open
enhances their skills. Particularly, the recent forms of com-
petence-based VET provide the learners an opportunity to
practice at different places (Bohne et al., 2017), which
enhances their market-based competencies. TVET is a key
source of social inclusion for its capacity of building the
individuals’ market-relevant skills to enhance the opportu-
nity for the unemployed to access the labor market (Nilsson,
2010).
A high rate of unemployment represents a higher social
exclusion of the individuals as unemployed are unable to
contribute to the society because of their low level of pro-
ductivity and income. This represents their social disen-
gagement, which is linked to negative performance or
lower productivity (Mirick, 2016; Simmons & Thompson,
2013). However, investing in TVET at national level pro-
vides a skill-building and employability opportunity to a
wide proportion of the national population. The employ-
ability is an indicator of social status and achievement
(Lawy & Biesta, 2006; Lister, 2000) representing the indi-
viduals’ productivity and their social inclusion
(Vandekinderen et al., 2018).
Due to its significant contribution to skill and employ-
ability, TVET also has a potential to reduce poverty.
Poverty is a multidimensional reality consisting of depri-
vations, unmet needs, and limited participation in social
affairs rather than being restricted to the financial condi-
tion or an inadequate income (Alcock, 1997). The research-
ers (Hagenaars, 2017; Ringen, Seegal, & England, 1995;
Sen, 1999) attribute poverty to the deprivation of educa-
tion, material resources, and the social exclusion. Poverty
keeps the individuals in the consistent need of maintaining
their moral state and material necessities, which deter their
autonomy. Consequently, the poor remain excluded from
social practices (Papa, 2018). This can be argued that the
poor are more likely to remain NEET due to their higher
material dependence as compared with the rich. On the
contrary, the research has also shown that unemployment
rate is lower in more-educated people (Cairo & Cajner,
2017). However, a higher national investment in TVET
initiatives is more likely to provide the poor and unedu-
cated people to have a skill-building opportunity based on
the government expenditure. Thus, the individuals living
in economies with high investment in TVET are more
likely to secure greater education and reeducation opportu-
nities to develop their market-required skills. Thus, a
national investment in TVET is also more likely to reduce
the poverty of the individuals. There is empirical evidence
available about the significant contribution of TVET in
enhancing individual’s skill (Jothilakshmi, Krishnaraj, &
Sudeepkumar, 2009), productivity (Kijima, Ito, & Otsuka,
2012; Rosholm, Nielsen, & Dabalen, 2007), income
(Mahmud, Parvez, Hilton, Kabir, & Wahid, 2014), and
economic well-being (Mahmud, Mohamed, Ismail,
Shamsudin, & Hilton, 2007).
Based on previous arguments discussed in the light of
human capital theory, this study has hypothesized that a
higher national TVET expenditure is more likely to enhance
employment and earnings, while reducing poverty. Thus, the
economies with a high TVET expenditure experience a high
social inclusion. Similarly, the economies, which experience
a reduction in poverty, experience an increase in their rating
on multidimensional poverty index.
Hypothesis 1 (H1): A higher national investment in
TVET is positively associated with social inclusion of the
individuals in an economy such that
Hypothesis 1a (H1a): An increase in national investment
in TVET is positively associated with an increase in
employment rate.
Hypothesis 1b (H1b): An increase in national investment
in TVET is positively associated with an increase in the
wages.
Hypothesis 1c (H1c): An increase in national investment
in TVET is positively associated with the increase in mul-
tidimensional poverty rating of an economy.
TVET and Economic Growth
The human capital approach is a key economic rationale for
the policy makers to enhance the national investment in edu-
cation to widen individuals’ participation in the education
(Gale & Molla, 2015). The human capital theory explains
that national investment in education and training for devel-
oping competent citizens is positively associated with eco-
nomic growth (Dean, 2003; Regmi et al., 2015). The
“education” as a strategy of economic revival attracted the
significant attention of policy makers after the 2008 Global
Financial Crisis (Antolin & Stewart, 2009). The human capi-
tal theory provides a perspective of the education as a capital
good for developing human resources to cope with socioeco-
nomic changes (Olaniyan & Okemakinde, 2008; Regmi
et al., 2015). The human capital outcomes resulting from the
imperative role of educational institutions (Biesta, 2006) as
the engine for economic growth (Gowlett, 2012) are driving
the recent educational policies (Walker, 2012). Hence, “the
human capital approach provides policymakers with an eco-
nomic rationale for widening participation in education”
(Gale & Molla, 2015, p. 819).
Based on human capital theory, this study explains how a
higher level of social inclusion may contribute to the growth
of an economy. Social inclusion enhances sociocultural
development (Comyn & Barnaart, 2010), which can enhance
social expenditure made by individuals and hence, the over-
all economic activity. The high productivity of the individu-
als and the organizations in a high socially inclusive economy
enhances its gross domestic product (GDP; Dearden et al.,
2005). The individuals of a socially inclusive economy are
more likely to secure jobs in the international labor market
Asadullah 5
and contribute to the economy through remittances
(Asadullah & Zafar, 2018). The individuals of a socially
inclusive economy are more likely to consumer national
products and services, hence, increasing circulation of wealth
and the overall economic activity. The increased circulation
of money reduces inequality and the equitable social envi-
ronment contributes positively to the economic situation
(Ali, Egbetokun, & Memon, 2018) because the social inclu-
sion enhances social activities (Rose, Daiches, & Potier,
2012).
The social investment, which has received a recent atten-
tion of policy makers in the welfare-state policies (Garritzmann
et al., 2018), emphasizes on developing human capital and
their efficient utilization (Morel et al., 2012). However, the
development and utilization of human capital may be less
effective if most of the population are poor. Poverty is a mul-
tidimensional reality and according to the perspective of
imperfect credit market (Stiglitz, 1969), the poor are highly
unlikely to repay their loans because of their inability to
invest their loans for some productivity gains. On the con-
trary, the people are more likely to utilize their loans and more
capable to reimburse if there is a higher opportunity for
employment and earnings in an economy. Similarly, the econ-
omies with low poverty ratio are also highly likely to reduce
crime rate, which can facilitate them in avoiding a significant
loss of GDP, for example, 7.5% in Latin America (Bennett,
2002). Thus, an economy, which has a higher rating on multi-
dimensional poverty index, is more likely to experience eco-
nomic growth as compared with the economies, which are
low in multidimensional poverty index. Thus, we hypothe-
sized the following:
Hypothesis 2 (H2): Social inclusion and economic
growth are positively associated such that,
Hypothesis 2a (H2a): The employment rate is positively
associated with economic growth.
Hypothesis 2b (H2b): Wage rate is positively associated
with economic growth.
Hypothesis 2c (H2c): The multidimensional poverty rat-
ing is positively associated with economic growth.
Indirect Effect of TVET Expenditure on Economic
Growth
The human capital theory explains the mechanism through
which national investment on TVET contributes to the eco-
nomic growth of a country through the elements of social
inclusion, that is, employment, wages, and the overall poverty
ranking of a country. The human capital theory is a wide-
spread notion for justifying the association between educa-
tion and economic growth (Marginson, 2019; Tanaka, 2018).
Human capital theory justifies the contribution of national
educational investment, as a part of social-welfare state pol-
icy, in the national economic growth through different social
inclusion indicators including employability, earning
(Nilsson, 2010), and poverty reduction. Human capital theory
advocates maximum utilization of human capital to enhance
economic growth because economic growth is more likely to
increase in the socially inclusive national environments,
which ensure equal chances for the individuals to benefit
from economic opportunities (Ali et al., 2018). National
TVET expenditure conveys a message of higher state-level
interest in developing national human capital. According to
the perspective of neoclassical economists, the human capital
refers to the national stock of knowledge and skills that enable
the people to perform work that creates economic value
(Nahapiet, 2011).
A higher national TVET expenditure represents a
greater supply of human resources in the labor market for
the organizations. Particularly, TVET also facilitates a
supply of human resources to the small and medium enter-
prises, hence, contributing to the economic growth of a
country. There is a recent empirical evidence about the sig-
nificant contribution of small and medium businesses in
economic growth and poverty reduction, in Ethiopia,
through TVET, which enhances their creativity and inno-
vation (Mihret Dessie & Shumetie Ademe, 2017). The
skilled individuals may secure minimum wages and over-
time pay through their employability to sufficiently meet
their basic necessities (Jayasinghe, 2016). As the acquisi-
tion of skills and knowledge enhances the productivity and
earnings (Becker, 1962; Kwon & Kim, 2009), a higher
TVET expenditure should enhance overall national pro-
ductivity and earnings. By combining the micro- and mac-
roperspectives of human capital theory, it can be argued
that higher TVET expenditure enhances the education
level of the citizens, collectively, which enhances their
employability and achievement as dictated (microperspec-
tive, Almendarez, 2013) and productivity, which further
strengthens the growth of an economy (Almendarez, 2013;
Blaug, 1976). In other sense, the growth of an economy
resulting from a higher TVET expenditure can also be as
an externality effect of education as stated by Canton
(2007), because the whole society benefits from this
investment by acquiring those skills and knowledge, which
enhance their employability and earnings. Based on the
previous arguments provided in the light of human capital
theory, it can be derived that the economies with high
employability, higher wages, and high poverty index (the
rating of a country on multidimensional poverty index rep-
resents that the poverty ratio is low in an economy) are
more likely to achieve economic growth through an
increased TVET expenditure. Thus, based on the human
capital theory, this study hypothesized that social inclusion
indicators strengthen the effect of national expenditure on
TVET on economic growth of a country.
Hypothesis 3 (H3): The social inclusion strengthens the
effect of national TVET expenditure on economic growth
of an economy.
6 SAGE Open
Hypothesis 3a (H3a): The increase in the employment
strengthens the effect of national TVET expenditure on
economic growth of an economy.
Hypothesis 3b (H3b): The increase in the wages strength-
ens the effect of national TVET expenditure on economic
growth of an economy.
Hypothesis 3c (H3c): The increase in multidimensional
poverty ranking of a country strengthens the effect of
national TVET expenditure on economic growth of an
economy.
Method and Measures
This is a longitudinal study–based panel data obtained
through secondary sources. This study used standardized
OECD statistics to measure the independent, mediator,
dependent variables, and the control variables. The data are
collected for 21 OECD member states of European Union
over a period of 15 years ranging from 2000 to 2014. The
statistics for the remaining OECD member states of European
Union was not available for the complete 15-year period,
therefore, the remaining OECD member states of European
Union are omitted. TVET is measured through the percent-
age of public spending on short-term tertiary education in a
country. We used change in real GDP to measure economic
growth of a country. The social inclusion is measured using
an index based on employment (Lister, 2000), wage rate
(income per capita), poverty, and inequality. Poverty is mea-
sured using multidimensional poverty index and inequality is
measured using the most commonly used measure, that is,
Gini-coefficient. The key macroeconomic variables such as
national saving, international trade, inflation and foreign
direct investment were introduced as control variables due to
their potential on economic growth (Lucas, 1988a, 1988b;
Zarsky & Gallagher, 2012).
Analytical Procedure
The mediation or indirect effect is commonly used to quan-
tify an indirect effect of an independent variable on a depen-
dent variable through a mediating variable (Hayes &
Preacher, 2010). The majority of existing literature on medi-
ation methods assumes that the direct and indirect paths
between independent, mediator, and dependent variables are
linear. However, the phenomena under investigation are less
linear in nature. This study aimed at investigating the media-
tion mechanism through which national investment in TVET
determines the economic growth through social inclusion.
The current study used a panel data for 21 countries over a
time period of 15 years ranging from 2000 to 2014. The data
set contains 315 total observations (21 countries ×15 years).
The longitudinal nature of the data set demonstrated that the
hypothesized direct and indirect paths may not be necessar-
ily linear. Thus, SPSS macro developed by Hayes and
Preacher (2010) used ordinary least square (OLS) regression
for estimating instantaneous indirect effects when the paths
between independent, dependent, and mediating variables
are nonlinear.
The index of social inclusion was created using the stan-
dardized estimates of employment, wage, and poverty.
Similarly, the variables were transformed on the same scale
using their standardized estimates prior to estimating the
mediation curve. This technique also provides another
advantage of using bootstrapping option for calculating indi-
rect estimates. This study used 2,000 bootstrapping samples
at 95% bias-corrected confidence interval. There are several
advantages of using bootstrapping technique over the para-
metric procedures for testing indirect effects. The researcher
can avoid the assumptions of distribution normally required
for parametric procedures. The bootstrapping is more robust
than parametric procedures with respect to their statistical
power and Type-I error rates (Fritz & MacKinnon, 2007;
MacKinnon, Lockwood, & Williams, 2004). Third, boot-
strap confidence intervals tend to be more asymmetric and
closer to the true sampling distribution (Hayes & Preacher,
2010).
Results
The first hypothesis of the study demonstrated that national
investment in TVET is positively linked to the social inclu-
sion of the individuals in an economy such that a higher
national investment in TVET is positively related to the
social inclusion (H1). The statistical output of instantaneous
indirect effect obtained through SPSS mediation curve esti-
mation macro using quadratic direct and indirect paths dem-
onstrated that national investment in TVET was positively
and significantly associated with employment (β = .243;
p < .001). This provided statistical support for H1.
Furthermore, the statistical results demonstrated positive and
significant association between social inclusion and eco-
nomic growth (β = .986; p < .001). This result also demon-
strated statistical support for H2. The Table 1, given below,
contains the values of beta coefficients and the standard
errors for different paths (i.e., independent to mediating vari-
able [Path a], mediating to the dependent variable [Path b]
and the independent to the dependent variable [Path c]) of
each mediation model investigated in the study.
Finally, the statistical output also demonstrated that the
instantaneous indirect effect of TVET on economic growth
through social inclusion was significant across different
values of TVET (i.e., mean, high [one standard deviation
above the mean], and low [one standard deviation below
the mean]). The estimates for instantaneous indirect effects
of TVET on economic growth through social inclusion
across low (–0.7268), medium (0.2110), and high (1.1488)
are given
in Table 3. These values provide evidence that among the
countries with the low, medium, or high level of national
investment in TVET, increasing national investment in
Asadullah 7

Table 1.  Descriptive Statistics for Standardized Values of the Variables.

M SD Emp Wage MPI S1 EG FDI Infl PCI IT Sav

TVET .213 0.928 .500** .491** .644** .525** –.059 .153** –.319** –.147** .129* .624**
Emp .043 1.054 1 .749** .680** .833** –.001 .089 –.11 –.117* .02 .425**
Wage .0146 1.044 1 .810** .675** –.138* .162** –.286** –.274** –.09 .460**
MPI .000 1.000 1 .693** –.216** .220** –.405** –.347** .046 .566**
S1 .011 0.642 1 .436** .144* –.153** .324** .101 .535**
EG –.068 1.0616 1 .024 .173** .965** .094 .098
FDI –.098 0.913 1 –.105 –.032 .131* .144*
Infl .0258 1.065 1 .207** .057 –.305**
PCI –.008 1.095 1 .116* .016
IT .247 0.855 1 .240**
Sav .0918 1.028 1

Note. EMP = employment rate; MPI = multidimensional poverty index; SI = social inclusion; EG = economic growth; FDI = foreign direct investment;
Infl = inflational; PCI = per capita income; IT = international trade; Sav = national saving; TVET = national investment in technical and vocational
education as percentage of GDP; GDP = gross domestic product.
**Correlation is significant at the 0.01 level (two tailed). *Correlation is significant at the 0.05 level (two tailed).

TVET may function to increase economic growth through
social inclusion. Table 3 provides the values of instanta-
neous indirect effects of the quadratic mediation models
investigated in the study along with the information about
the effect size of indirect effect at different values (mean/
medium; low, that is, one standard deviation above the
mean; and high, that is, one standard deviation below the
mean) of TVET (theta in third column), the upper bound
and lower bound values (at 95% confidence intervals with
1,000 boot strapping samples) obtained (column 4 and 5)
and the simple interpretation of the results (column 6).
Post Hoc Analysis
We performed post hoc analysis to further probe the indirect
effect of each of the mediating variables used to create the
index of social inclusion (employment, wage, and poverty).
The first hypothesis stated that national investment in TVET
is positively related to the social inclusion such that a higher
national investment in TVET is positively associated with
employment rate (H1a) and wages (H1b) but negatively
associated with poverty (H1c). We tested instantaneous indi-
rect effect through employment by constraining the Path b as
quadratic.
The statistical output of instantaneous indirect effect
obtained through SPSS mediation curve estimation macro
using quadratic direct and indirect paths (Table 2) demon-
strated that national investment in TVET was positively and
significantly associated with employment at 90% confidence
interval (β= .117; p < .10). This provided partial statistical
support for H1a. But, national investment in TVET is also
positively associated with wages (β= .347; p < .001) and
multidimensional poverty index (β = .529; p < .001). This
demonstrated statistical support for H1b and H1c. Thus,
overall H1 was supported.
The second hypothesis was delineated to examine the
positive association of employment rate (H2a) and wages
(H2b) with economic growth, while negative association of
poverty to the economic growth (H2c). The statistical results
supported the positive and significant association between
employment rate and economic growth (β = .634; p > .05),
while controlling for the effect of per capita income, infla-
tion, saving, international trade, and foreign direct. This sta-
tistical result demonstrates statistical support for H2a. The
statistical results also demonstrated that MPI (multidimen-
sional poverty index) is positively and significantly associ-
ated with the economic growth (β = .144; p > .001). This
also demonstrates statistical support for H2c because of neg-
ative coefficients. Similarly, the results provided statistical
support for H2b describing that wages increase is positively
associated with economic growth (β = .134; p < .01), while
controlling for the effect of inflation, savings, per capita
income, foreign direct investment, and international trade.
The third hypothesis was defined to examine a significant
indirect effect of TVET on economic growth through social
inclusion (H3). We also probed individual-level instanta-
neous indirect effect of three subdimensions of social inclu-
sion, that is, employment, wages, and poverty using the
mediation curve micro in SPSS. The statistical results
revealed that the instantaneous indirect effect of TVET on
economic growth through employment was insignificant
across different values of TVET (i.e., medium, low, and
high). Hence, H3a was not supported. The interval estimates
for instantaneous indirect effects of TVET on economic
growth through employment across low (–0.7268), medium
(0.2110), and high (1.1488) are provided in Table 3. There is
evidence that among the countries with the low, medium, or
high level of national investment in TVET, increasing
national investment in TVET may function to increase eco-
nomic growth through employment.
8 SAGE Open

Table 2.  The Statistical Results for the Quadratic Effects of Path a, Path b, and Path c’s Relationships Hypothesized in the Study.

TVET→SI→EG TVET→EMP→EG TVET→Wage→EG TVET→MPI→EG

Model 2: Model 2:
Model 1 Model 2 Model 1: Model 2: Model 1: DV = EG Model 1: DV = EG
DV = SI DV = EG DV=EMP DV = EG DV = Wage (Path b and DV = MPI (Path b and
Variables (Path a) (Path b and c) (Path a) (Path b and c) (Path a) Path c) (Path a) Path c)
Sav 0.227 0.085 0.054 1.0957 0.303 .011 0.260 0.307
(0.039)*** (0.064) (0.057) (0.239)*** (0.048)*** (0.019) (0.051)*** (0.081)***
INF 0.039 0.15 0.218 0.142 –.107 .028 –0.144 0.109
(0.031) (0.047)** (0.044)*** (0.194) (0.038)** (0.014)† (0.039)** (0.056)†
IT –0.037 0.105 –0.049 0.1741 –.127 –.055 –0.162 0.032
(0.039) (0.059)† (0.051) (0.216) (0.048)** (0.018)** (0.050)* (0.070)
FDI 0.036 0.005 — — 0.098 .037 0.101 0.079
(0.031) (0.052) (0.041)* (0.015)* (0.044)* (0.064)
PCI — — — — –.226 .979 — —
(0.036)*** (0.014)***
MPI — — 0.718 –1.800 — — — —
(0.06)*** (0.308)***
SI — 0.986 — — — — — —
(0.089)***
SI × SI — –0.608 — — — — — —
(0.086)***
TVET 0 .243 –0.580 0.117 0.023 0.529 0.026 0.602 –0.003
(0.048)*** (0.079)*** (0.066)† (0.284) (0.060)*** (0.025) (0.063)*** (0.088)
TVET × TVET –0.030 0.125 — — –.168 –.024 –0.188 –0.003
(0.032) (0.050)* (0.039)*** (0.015) (0.042)*** (0.088)
EMP — — — 0.634 — — — —
(0.248)*
EMP × EMP — — — 0.313 — — — —
(0.163)†
  — —  
Wages — — — — — 0.144 — —
(0.022)***
Wage × Wage — — — — — 0.029 — —
(0.012)*
MPI — — — — — — — –0.342
(0.085)***
MPI × MPI — — — — — — — 0.066
(0.049)
R2 .355 .430 .541 .137 .596 .95 .736 .370

Note. Independent variable: TVET (National Investment in Technical and Vocational Education as percentage of GDP); mediating variable: SI = social
inclusion; EMP = employment rate; MPI = multidimensional poverty index; dependent variable: EG = economic growth; control variables: FDI = foreign
direct investment; IT = international trade; INF = inflation; Sav = national saving; PCI = per capita income; GDP = gross domestic product;
DV = dependent variable.
†
p < .10. *p < .05. **p < .01. ***p < .001.

However, the statistical results revealed that the instanta-
neous indirect effect of TVET on economic growth through
wages was significant across different values of TVET (i.e.,
medium [mean], high [one standard deviation above the
mean], and low [one standard deviation below the mean]).
Hence, H3b was supported. The interval estimates for instan-
taneous indirect effects of TVET on economic growth
through wages across low (–0.7268), medium (0.2110), and
high (1.1488) are given in Table 3. This indicates that among
the countries with the low, medium, or high level of national
investment in TVET, increasing national investment in
TVET may function to increase economic growth through
the wages.
Similarly, the statistical results revealed that the instanta-
neous indirect effect of TVET on economic growth through
multidimensional poverty index was significant across dif-
ferent values of TVET (i.e., medium [mean], high [one stan-
dard deviation above the mean], and low [one standard
Asadullah 9

Table 3.  Bootstrapping Results for Instantaneous Indirect Effects of TVET on EG Through Social Inclusion (EMP, Wage, and Poverty)
Using Quadratic Paths Across Different Values of TVET Spending.

95% bootstrapping CI
Instantaneous indirect effects of TVET Instantaneous values
expenditure of TVET θ Upper bound Lower bound Interpretation
1.  Through social inclusion: Low(–1 SD) = −0.727 0.3546 0.1121 0.8000 Significant
TVET→SI→EG Medium (M) = 0.211 0.2165 0.1259 0.3417 Significant
High (+1 SD) = 1.149 0.1231 0.0630 0.2266 Significant
2.  Through employment: Low (–1 SD) = −0.727 0.0696 0.003 0.185 Significant
TVET→EMP→EG Medium (M) = 0.211 0.0776 0.003 0.199 Significant
High (+1 SD) = 1.149 0.0856 0.0009 0.217 Significant
3.  Through Wages: Low(–1 SD) = −0.727 0.067 0.313 0.121 Significant
TVETW→age→EG Medium (M) = 0.211 0.041 0.218 0.066 Significant
High (+1 SD) = 1.149 0.021 0.045 0.047 Significant
4.  Through multidimensional poverty index: Low(–1 SD) = −0.727 –0.354 –0.547 –0.172 Significant
TVET→MPI→EG Medium (M) = 0.211 –0.166 –0.284 –0.061 Significant
High (+1 SD) = 1.149 –0.047 –0.129 –0.009 Significant

Note. TVET = national investment in technical and vocational education as percentage of GDP; EG = economic growth; EMP = employment rate;
SI = social inclusion; MPI = multidimensional poverty index; GDP = gross domestic product.

deviation below the mean]). Hence, H3c was also supported.
The interval estimates for instantaneous indirect effects of
TVET on economic growth through multidimensional pov-
erty index across low (–0.7268), medium (0.2110), and high
(1.1488) are given in Table 3. There is evidence that among
the countries with the low, medium, or high level of national
investment in TVET, increasing national investment in
TVET may function to increase economic growth through
multidimensional poverty index.
Discussion
This study has analyzed a socioeconomic mechanism to
explain how the national investment TVET has contributed
to the economic growth of 21 European economies. The
author has provided an empirical evidence for the embedded
assumption of the literature in human capital regarding
national investment in technical and vocation education,
social inclusion and economic growth. The author developed
a competing set of theoretically rooted hypotheses in the lit-
erature of human capital that has highlighted the role of
TVET in social and economic gains of a nation. In brief, our
analysis of the sample derived from 21 European states pro-
vided empirical support for the hypotheses theoretically
based in human capital theory.
The governments tend to convey a public message of their
concern for social and economic responsibility by taking
decisions of developing national human resources through
educational investment. There is a prevailing perception that
a higher national spending on education may have signifi-
cant and higher direct effects on national-level economic
outcomes. However, this might not be a necessary case. This
requires the policy makers to identify the mechanisms
through which higher economic outcomes of higher educa-
tion spending may be guaranteed. This study has shown
empirical support for a possible social mechanism through
which the economic effects of national educational invest-
ment can be obtained. Particularly, utilizing the notion of
human capital theory, this study has provided clear empirical
evidence for the social inclusion as a mechanism through
which the national investment in TVET is linked to the eco-
nomic growth in 21 Schengen states.
According to the statistical analysis, 23% increase in
social inclusion was observed as a result of increase in
national TVET expenditure. Whereas, individually, 12%
increase in employment, 53% increase in wages, and 60%
increase in poverty ratings of a country was found to be a
function of an increase in national spending in TVET. Thus,
this study demonstrates that by increasing national spending
on TVET, the countries are capable of achieving an increase
in the employment, wages, and their poverty ratings.
Particularly, these findings are consistent with the existing
empirical studies, which demonstrate the positive associa-
tion between vocational qualifications and employment in
different European economies including England (McIntosh
& Garrett, 2009), Portugal (Budría & Telhado-Pereira, 2009),
and Germany (European Centre for the Development of
Vocational Training (Cedefop), 2009). A recent empirical
evidence from Senegal also pointed toward increased
employment as a decrease in the gap between the demand
and supply of high-skilled labor resulting from educational
reforms (Boccanfuso, Larouche, & Trandafir, 2015). These
findings are consistent with the notion of human capital the-
ory that developing skills of people through education and
training enhances their employability (Docherty et al., 2002;
Handel et  al., 2016; McGuinness et  al., 2017), which
10 SAGE Open
represents their social status and achievement (Lawy &
Biesta, 2006; Lister, 1997) and their social inclusion
(Vandekinderen et al., 2018). The positive association found
between TVET expenditure and wages is also consistent
with existing empirical studies, which reported the signifi-
cant contribution of TVET in enhancing individual’s skill
(Jothilakshmi et al., 2009), income (Benhabib & Spiegel,
1994; Mahmud et al., 2014; Mankiw, Romer, & Weil, 1992),
and economic well-being (Mahmud et al., 2007).
Second, 13% increase in the economic growth of a coun-
try accounted for an increase in social inclusion. This finding
represents a significant economic gain for the countries,
which ensure a high level of social inclusion as compared
with the countries with less social inclusion. This finding is
consistent with the view that an equitable social environment
contributes positively to the economic situation (Ali et al.,
2018). While isolating the effects of social inclusion index
variables, the study found that 63% increase in economic
growth was resulting from employment and 14% increase
was resulting from the wage increase. This represents that
countries with employment level and wage rate have the
advantage of higher economic growth over the countries
with lower employment and wages. Similarly, the economies
with good indexing of in multiple poverty dimension experi-
ence a 14% increase in their economic growth. Thus, overall,
the social inclusion index and its individual dimensions dem-
onstrate an increase in economic growth of the economies.
Thus, the economic gains of the countries addressing basic
economic reforms, which allow them for a socially inclusive
economy based on employment opportunities, higher wages,
and low poverty ratio may be higher than the countries pay-
ing less attention to the social inclusion reforms. This also
represents that the countries, which do not emphasize social
inclusion policies may not bypass economic advantage. In
the absence of social inclusion policies with less employ-
ment and fewer wage opportunities and high poverty, the
people may perceive the investment in TVET as a mean of
exploitation on behalf of the policy makers and may react
negatively to such national-level expenditures.
The significant indirect effect of the national TVET
expenditure in economic growth through social inclusion
indicators (employment wage and multidimensional poverty
ratings) found in the current study offers theoretical contri-
bution to the existing literature on economic growth. This
finding has introduced social inclusion as a mediating mech-
anism through which human capital contributes to the eco-
nomic growth. This finding supports the recent movement of
social investment/welfare-state (Busemeyer et al., 2018;
Garritzmann et al., 2018) reforms in different OECD econo-
mies to develop and efficiently utilizing human capital to
achieve economic growth through social inclusion (Morel,
Palier, & Palme, 2013). This finding also supports the notion
of human capital theory to gain economic excellence through
key social inclusion indicators including employability,
earning (Nilsson, 2010), and poverty elimination. Particularly,
this finding supports the view that rather than relying on a
sole perspective, the combined micro and macro perspec-
tives is more appropriate to use the notion of human capital
theory for explaining the mechanism through which human
capital development initiatives contribute to the national
economic gains.
This study found that the indirect effects of TVET on eco-
nomic growth through social inclusion are positive and sig-
nificant at low, medium, and high values of TVET, yet, the
values are decreasing from low to high, as highlighted in
Table 3. A further examination of the indirect effects through
each indicator of the social inclusion, separately, demon-
strated that this downward trend in the indirect effects across
different values of TVET existed due to the wages. This find-
ing was surprising for the researchers, which calls for the
future research to investigate the rationale behind such a
negative trend in indirect effects of the wages. In a recent
study, Gehrke and Hartwig (2018) found that public welfare
programs are only preferable if the wages are low. Should
this finding offer similar conclusion that TVET expenditure
is preferable only if the wages are below minimum? Another
possible explanation may be provided regarding this declin-
ing mediating effect of wages between TVET expenditure
and economic growth. As TVET expenditure is primarily
emphasized on developing the skills and knowledge of the
people to find some employment opportunity while wage
increase may be the second priority of the states because the
states are more likely to invest in TVET in the time of higher
unemployment. Thus, a higher TVET expenditure may rep-
resent a higher unemployment and vice versa. The future
research may also develop an understanding of the factors
underlying the weaker indirect effect at higher TVET
expenditure.
This study used data set related to 21 OECD member
countries for 15 years (2000-2014). Unfortunately, the statis-
tics for some of the variables used in the current study for the
years 2015-2018 were unavailable or partially available,
which can be incorporated in future studies to replicate the
findings. Similarly, this study used SPSS macro for investi-
gating quadratic indirect effects, which relies on OLS regres-
sion. However, the future research can replicate the findings
using other estimation techniques such as Quantile regres-
sion or Proc quantreg using statistical software other than
SPSS.
Conclusion
TVET seems to be an effective national investment decision
for the European economies following the paradigm of wel-
fare-state/social-state due to various reasons. First, investing
in TVET enhances social inclusion of the individuals due to
its potential for enhancing employment, earnings, and the
multidimensional poverty rating of an economy. Second, the
social inclusion indicators positively contribute to the eco-
nomic growth of an economy. TVET expenditure allows the
Asadullah 11
states to obtain economic growth through social inclusion,
particularly, the employment, earnings, and poverty elimina-
tion. The existing research on human capital development
does not discuss the indirect effect of TVET expenditure on
economic growth through social inclusion. The researchers
and the policy makers may benefit from the empirical evi-
dence about the improved understanding of the effectiveness
of the human capital initiatives in the OECD member states
of European Union. Particularly, the human capital theory
may be contextualized, and the scope of human capital devel-
opment initiatives in the OECD countries may be reconceptu-
alized to encompass national human capital development
decisions including TVET and social inclusion.
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect
to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, author-
ship, and/or publication of this article.
Note
1. https://www.weforum.org/agenda/2017/09/what-to-know%20
about-work-jobs-human-capital-2017.
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Author Biographies
Muhammad Ali Asadullah is serving as an assistant professor of
Human Resource Management (HRM) at Emirates College of
Technology, Abu Dhabi, United Arab Emirates. He obtained his
PhD (HRM) in 2012 from Aix-Marseille University, Aix-en-
Provence, France.