Role of Human Capital in Economic Development

Topics: Economics, Economic growth, Higher education Pages: 7 (2134 words) Published: December 18, 2013


Our research topic is to analyze the relationship between human capital and economic growth. Economic growths important determinant are physical capital, labor and human capital. But from the recent trend of world economic growth, we found that human capital is playing a key role by taking the place of material capital and labor. Human capital is intimately related to growth as it increases the nation’s capacity to produce goods and services. It also creates more job opportunities and lifts the living standards of a country through increase in income levels. Human capital deals with individuals who learn special skills and knowledge trough education at school, training and experience in the labor market (Barro et al, 2000). However, Economic growth refers to the increase in the amount of the goods and services produced by an economy over time (Jones, 1996). As a result of their skills and education, productivity level would increase because educated workers would work at a faster pace than less educated workers

Human capital refers to the knowledge and skills embodied in people. It is widely recognized that some types of human capital are obtained through experience or interactions with others and with formal education. Human capital is intimately related to the economic growth. Masses believe that capital means a bank account, stock or factory plants in the industrial area. These are also a type of capital that they are assets that increase income and other useful outputs over long periods of time. But such tangible forms of capital are not the only type of capital. There is another very important type of capital known as human capital. It implies to Schooling, a computer training course, expenditures on medical care, and lectures on the virtues of punctuality, expertise and honesty. It is because these factors are also contributing to raise earnings, improve health, or over all increasing the economic growth rate. Therefore, economists regard spending on training, medical care, education and so on as investments in human capital. They are called human capital because people cannot be separated from their knowledge, skills, health, or values in the way they can be separated from their financial and physical assets. The notion of human capital arose out of the awareness that physical capital alone was not enough to explain long term growth. Many social indicators such as educational enrolments and life expectancy became combined in a common term: human capital. Often, human capital is implicitly referred to as formal and informal education. Yet, it can also contain factors such as the costs of raising children, health costs, and ability.


Economic growth depends on many factors such as the quantity and quality of education, how education can impact on fertility rate, government policies to sustain incentives for human capital, a reduction in the cost of technology adoption and increase expenditure on education. Education and other aspects of human capital is important to economic growth because more educated individuals tend to have higher employment rate and earnings and produce more output relative to those who are less educated. Education is considered as a positive investment that allows individuals to be equipped with knowledge and skills that can improve their employability and productive capacities that would lead to higher earnings in the future and hence, economic growth. Moreover, it has shown that it is not only the amount of formal education that matters, but also that the type of knowledge possessed by labor in a region also plays a key role in determining the level of economic activity. There are various type of education having there own effect on the economic growth such as skilled based education primary education specialized education higher education and education to develop entrepreneur skills, the more the entrepreneurs are in a country, more the business will...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Role of Human Capital in Economic Development Essay
  • Human Capital Essay
  • economic development Essay
  • Economics and Human Capital Essay
  • Capital and Economic Development Essay
  • Role of Entrepreneurship in Economic Development Essay
  • Essay on Human Capital Memo
  • Role of Human Resource Development Essay

Become a StudyMode Member

Sign Up - It's Free