Role of Human Capital in Economic Development

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Role of Human Capital in Economic Development

Concept of Human Capital

Every nation needs to have its human capital to be developed to generate employment and

contribute for socio-economic transformation. Many countries adopt human capital

development as a special strategy to empower their people.

The importance of human capital is not only a new phenomena but it had been realized the

importance in the ancient days as well. A Chinese proverb says To plan one year, saw seed; to

plan ten years, plant trees; and to plan 100 years, develop human resources . Development of

human capital is not only a short term strategy, but it should be looked from the long term

perspective. The definition human capital used by Peter Husz is: "By human capital we mean

the time, experience, knowledge and abilities of an individual household or a generation, which

can be used in the production process". It is application of knowledge. It gives people an

awareness of the rules and procedures to guide their behavior. It attempts to improve their

performance. It is also concerned with preparing employees to work effectively and efficiently.

In general it helps to develop specific type skilled persons in required number; fulfill the

demand of skilled human resources; support industrial expansion; strengthen economic

growth; increase enthusiasm in working condition; develop desired attitude of the people; and

enhance entrepreneurial abilities, etc.

Role of Education and Health in Economic Development

ncreased productivity is an indicator of economic growth and this can be achieved through

greater investment in labor and capital. However, investment in capital can only be fully

utilized if there is a healthy and educated workforce available in the economy. Thus, health and

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education both play a vital role in improving productivity and economic growth. For their dual

role are both inputs and outputs they have a central role in economic development.

Good health not only gives a longer life period but also it helps in raising return to investments

in education, as a healthy educated persons work adds to the productivity of the economy.

Education will also raise awareness about basic sanitation and hygiene and lower the chances

of an individual getting ill.

In 1950, some 280 of every 1000 children in the developing world as a whole died before their

fifth birthday. By 2005, that number had fallen to 114 per 1000 in low income countries, and 37

per 1000 in middle-income countries (compared with 7 per 1000, in high-income countries).

Education is the driver of economic growth, and thus health plays an indirect role. The indirect

effect of health is positive and significant. Without recognition of the indirect role of health the

economic benefits of health improvements can t be possible. On the other side education is

widely accepted as a leading instrument for promoting economic growth. For Africa, where

growth is essential and if the continent is to move out of poverty, education is particularlyimportant.

Recent evidence suggests higher education is both a result and a determinant of income and

can produce public and private benefits. Higher education may create greater tax revenue,

increase savings, investment and lead to a more entrepreneurial and civic society. It can also

improve a nation s health, contribute to reduced population growth, improve technology, and

strengthen governance. Again higher education will not make a difference in Africa if otherbarriers to development play a negative role. Higher education creates the potential, but

governments and private actors must hold of the opportunities.


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The role of human capital is almost universally regarded as the engine of economic growth.

Sustained growth depends on levels of human capital whose stocks increase as a result of

better education, higher levels of health and new learning and training procedures. Without a

labor force with the minimum levels of education and health, a country would not be capable

of maintaining a state of continuous growth. The effects of human capital variables mean that

the investment rate tends to increase as the levels of education and health rise. Both these

variables develop systematically according to levels of development, and these changes may be

linked to increases in the investment rate. A more highly educated and healthier workforce

finds it easier to create, use, and adapt new technologies. Poor countries have lower levels of

human capital and therefore have greater difficulties in competing with those that are more

highly developed. In order to generate growth in poorer economies their levels of human

capital must begin to converge with those of richer nations.

Health and nutrition are also important elements of human capital. A healthier worker can

contribute more in the production process than his unhealthy counterpart. There are several

channels that define the contribution of health in production and output4. Like a healthier

worker can produce more output than an unhealthy worker because of his higher physical and

mental capabilities, vigor and stamina. In the same way, for a given level of all other factors, theeconomy can produce higher output if it has higher level of healthy workers. Health is an

important factor for determining the level of returns from education because a healthier

person can learn more than an unhealthy one from a given level of education. In this way,

improvement in health increases output due to increased strength and also due to more

learning from a given level of education.

Good health is an essential component of well-being. However, improvements in health statusmay be justified on purely economic grounds. It seems to be a logical assumption that good

health raises human capital levels and therefore the economic productivity of individuals and a

country`s economic growth rate. Better health increases workforce productivity by reducing

incapacity, weakness, and reduces the opportunities an individual has of obtaining better paid


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work. Further, good health helps to improved levels of education by increasing levels of

schooling and academic performance.

N utrition has a strong link with productivity, output and economic growth. A person who takes

nutritious food is likely to be more productive due to high energy and strength. In this way

providing good nutrition is considered as an investment in human capital. Especially in the case

of economic growth, education and health reinforce each other; being healthy is as important

for economic growth as being educated.

The government needs to consider all of these aspects of economic development. This in turn

will also benefit the corporate sector of the economy and for this reason they should also help

the government in improving the health and education for the country.

Human Capital Development for Women Empowerment

The last decade the traditional views of women have been changed quite remarkably and

women contribute to a larger extent to Bangladesh economy. It is conceivable that the share of

rural women in total employed population in Bangladesh rose from 9 percent to 13 percent

since the late 1980s. Clearly it indicates that rural women have been involving themselves in

market based economic activities like garments sector at a pace that is growing much faster

than that of men. Various non-governmental organizations like Bangladesh Rural Advance

Committee (BRAC), CARE are now working in Bangladesh focusing on the empowerment on

women. As the government has adopted inclusive policies to enroll in the civil service and other

sector, the share of women has been dramatically increased. In early 1980s the number of

women s share in bureaucracy, and other sector was less than 10% which rose to around 20%

at present. However, they are still fare behind than male population.


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From different writings it has also been found that positive changes have taken in their

attitudes and perception of their own role after the getting them involved in different

entrepreneurial activities. In other words participation in different entrepreneurial activities has

empowered women in social, economic and cultural fields. Now the power and access in taking

decision of their own has increased in economic and household matters for women in third

world countries like Bangladesh. They are now much more self confident than before. Women

are much organized as they have learned about different rights.

Total Literacy Rate and Life Expectancy at Birth to Explain Economic Development

Healthy human capital is one of the important factors in explaining the economic development.

There are many variables to represent human capital and health conditions of the people of a

nation. We focus some of the literacy rate

To evaluate literacy rate, I consider some Asian countries. In the 1960s when most of these

countries were at similar stages of economic development but now East Asian developing

countries were far ahead of both Asian least developed countries and South Asian developing

countries. In fact, the total literacy rates for East Asian developing countries in the 1960s were

as high as 71 per cent for the Republic of Korea, 68 per cent for Thailand and even Malaysia had

a rate of over 50 per cent. On the other hand, in case of all Asian least developed countries and

South Asian developing countries, the total literacy rates were as low as only 9 per cent for

Nepal and 15 per cent for Pakistan with Cambodia having a rate of 38 per cent. After three

decades the total literacy rates are still far below 50 per cent particularly, in case of Bangladesh,

Nepal and Pakistan as shown in figure. During the same period the East Asian developing

countries have more or less achieved the formidable task of educating most of their people. As

a result, in the late 1990s, the total literacy rate of the Republic of Korea has reached 98 per

cent and Malaysia managed to achieve a rate of about 90 per cent.


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Analyzing the health variable measured in terms of life expectancy at birth across the three

groups of countries in the Asian region, like the literacy rate, again a similar sort of pattern is

evident among these countries. For instance, in the 1960s, all Asian least developed countries

and South Asian developing countries had a life expectancy at birth below 45 years with Bhutan

and Nepal having a number of even much less than 40 years as shown in figure. On the other

hand, during the same period, the East Asian developing countries had a life expectancy at birth

well over 50 years with the Republic of Korea having a figure over 54 years followed by 53 years

for Malaysia and 51 years for Thailand. In the late 1990s, although the Asian least developed

countries and South Asian developing countries enhanced their life expectancy to a level of

over 60 years at least in the case of Bangladesh, Bhutan, India and Pakistan, nevertheless, East


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Asian developing countries is far more affecting as shown in the figure. Both Malaysia and the

Republic of Korea, the life expectancy rate is now in the order of over 72 years with Thailand

reaching a figure of 69 years.

From those data it can summarize that in the past three decades, the three groups of Asian

countries considered a similar state of economic development but now there is a marked

difference among them on account of their per capita incomes. The East Asian developing

countries are now well beyond the reach of Asian least developed countries as well as South

Asian developing countries in terms of economic development. Secondly, although in terms of

per capita income all these groups of countries were quite comparable in the 1960s but in the

context of human capital and health sector development, there were huge differences among

them. East Asian developing countries far ahead of both Asian least developed countries as well

as South Asian developing countries. In the 1990s, most East Asian developing countries


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population were literate while Asian least developed countries and South Asian developing

countries still have a long way to go. Thirdly, it is evident that the reason of East Asian

developing countries rapid economic progress was their reasonably well developed and

healthy human capital endowment which started to take momentum in the 1960s or even

earlier.

It is noted that human capital generates economic development a nation needs to have a

minimum captious mass of at least 70 per cent or more literate population. What this means is

that if an overwhelmingly large number of people in a country are literate this may open up the

minds of the masses, possibly make them more enlightened workers and perhaps institute

some element of discipline in them. This literature can be even with simple basic education as

being able to read newspapers. Through mass literacy, better prepared healthy workers and

friendly government policies, East Asian developing countries seem to have been able to

furnish those essential elements of rapid growth at the very early stages of their development.

References

Health, Human Capital and Economic Growth by Oded Galor; Edited by Fernando Montenegro

Education Priorities for Human Resource Centered Development in Bangladesh by Manzoor

Ahmed, Institute of Educational Development, BRAC University, Dhaka, Bangladesh; and James

H. Williams, International Education, The George Washington University, Washington DC, USA

Human Capital and Economic Growth by Hyun H. Son

Strategy for Improving Human Capital in Bangladesh and N epal : Does it help for Women

Empowerment by Prof. Dr. T.N. Dhakal, Central Department of Public Administration,


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Tribhuban University Kathmandu Nepal; and Ms. F. Nawaz, Department of Public

Administration Rajshahi University, Bangladesh

Human Capital and Economic Growth: TIME SERIES EVIDE N CE FROM PAKISTAN by Faisal

Sultan Qadri, University of Karachi

Human Capital and Economic Development by Simon Appleton and Francis Teal

Economic Development by Michael P. Todaro and Stephen C. Smith

Role of Human Capital in Economic Development

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