Role of Human Capital in Economic Development

What is Human Capital?

Human capital is intangible and built in the body and mind of its owner. Whether a human being wants to raise the earnings depends on his/her inner conscience. Human capital cannot be sold, but only its services can be sold in the market. It creates both private and social benefits.

Human Capital

Role of Human Capital in Economic Development

Human capital plays an important role in economic development. It is required to use physical capital more productively. We also need human capital to produce other human capital such as doctors, lawyers, and engineers. Investment in human beings helps to produce more human capital. This enables us to
increase the work participation rate and greater the level of output.

Education and Economic Growth

An individual’s expenditure on education is similar to a producer’s investment in capital goods. According to the estimate of Edward F. Dension, investment in education contributed to 23% of the growth of total real income and 42% to the growth of real national income per person employed in the USA during 1929–57. Hence, there is a positive relationship between the proportion of people below the poverty line and the proportion of illiterate people. Also, it is found that there is a negative relationship between female literacy and birth rate. Educating farmers enables them to adopt new agricultural techniques and methods of farming. The firm’s expenditure on on-the-job training has a direct impact on production. This training increases the skill and productivity of workers.

Education plays a significant role in economic development as follows:

  • Education increases the accessibility of people to modern and scientific ideas.
  • It increases the efficiency and ability of people to absorb new technology.
  • It creates awareness of the available opportunities and mobility of labour.
  • Education helps individuals to gain knowledge, skills and attitude which would enable them to understand changes in society and scientific advancements.
  • Investment in education is one of the main sources of human capital which facilitates inventions and innovations.
  • Available educated labour force facilitates adaptation of advanced technology in a country.

Health and Economic Growth

The role of health in the development of human capital is vital. To prevent a population from being a liability of a country, the government must pay adequate attention to medical facilities and sanitation of the public. Educated people will invest in their child’s health, thus building a better future for the nation.

According to the World Health Organization (WHO), health is a state of complete physical, mental and social well-being and not only the absence of disease. The health status is measured in terms of life expectancy at birth, infant mortality rate, fertility rate, crude birth rate, and crude death rate. As investment in health increases the productive capacity of the working population, the level of income rises which contributes to a decline in the incidence of poverty. Over the last five decades, India has built up health infrastructure and manpower at primary, secondary, and tertiary care in government, voluntary and private sectors and made considerable progress in improving the health of its population.

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