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Human Capital and Economic Growth: Evidence From Developing Countries
Human Capital and Economic Growth: Evidence From Developing Countries
DEVELOPING COUNTRIES*
by Hrishikesh D. Vinod** and Surendra K. Kaushik***
Abstract
Human capital in the form of education has been used to explain GDP growth in augmented
Solow models. A statistically significant coefficient for human capital variable in these models
was recently reported for OECD countries using recent data. We use time series and panel
regressions for data on a group of eighteen large developing countries for the period 1982-2001.
This study confirms and extends results by OECD and other similar studies. Since most of our
models have a significant human capital regressor in such a study of developing countries, it is
important for policy regarding educational opportunities, and increased emphasis and focus on
education and technology in developing countries.
Key Words: Dependent Data Bootstrap, Schooling, Educational Expenditures, Ergodic Theorem.
I. Introduction
The traditional Solow (1956) theory of economic growth does not explicitly measure the role
of human capital.
He found that the increased use of capital explained 12.5 percent of the
change in gross output per man-hour while the concept of technical change explained the
residual 87.5 percent. Later it was realized that much of this residual might be due to human
capital. Hence researchers developed augmented Solow models, which contain human capital as
a regressor in explaining GDP growth.
*The authors thank the Lubin School of Business of Pace University for partial funding and James Xin Chen,
Radhika Rangan and Demetrios Stamoulakis for research assistance for this paper. They also thank William J.
Baumol, Oded Galor, Frank C. Genovese, Kathleen M. Langley, Robert M. Solow, Lawrence H. Summers, Michael
Szenberg, an anonymous referee, and others for encouraging comments on earlier versions.
**Professor of Economics, Fordham University. NY 10458 (vinod@fordham.edu) (718) 817-4065
***Professor of Finance, Lubin School of Business Pace University, 1 Martine Avenue, White Plains, NY 10606,
(skaushik@pace.edu), (914) 422-4350
The topic is important in the context of education and human capital policies and budget
allocations in developing countries. Some versions of augmented models are found in Romer
(1990), Barro and Sala-i-Martin (1995), Knight, Loyaza, and Villanueva (1993), Benhabib and
Spiegel (1994) and Lucas (2002). Using a variety of older data and standard estimation and
inference techniques these authors did not find human capital to be statistically significant. Barro
and Lee (1993) constructed a measure of human capital based on the number of years of
schooling of adults 25 or older for 129 countries. However, Barro and Lee (1994, 1996) or
Caselli, Esquivel and Lefort (1996) did not find any unique importance of the human capital
variable.
Mankiw, Romer and Weil (1992, hereafter MRW) state that: particularly for the
developing countries, investment in human capital also becomes more quantitatively important
when a more open trading environment and a better public infrastructure are in place. However,
Temple (1998) applies robustness tests to MRW results and does not find human capital to be
significant. By contrast, Judson (1998) studies the efficiency of existing educational allocations
in a panel of countries. He uses cross-country growth decomposition regression to show that the
correlation of human capital with capital accumulation and GDP growth is not significant in
countries with poor allocations but is significant and positive in countries with better allocations.
Thus better allocations and open trading environment might reverse the conclusions regarding
the significance of human capital, since the earlier doubts were based on older data.
Mankiw, Romer and Weil (1992, hereafter MRW) state that: particularly for the
developing countries, investment in human capital also becomes more quantitatively important
when a more open trading environment and a better public infrastructure are in place. However,
Temple (1998) applies robustness tests to MRW results and does not find human capital to be
significant. By contrast, Judson (1998) studies the efficiency of existing educational allocations
in a panel of countries. He uses cross-country growth decomposition regression to show that the
correlation of human capital with capital accumulation and GDP growth is not significant in
countries with poor allocations but is significant and positive in countries with better allocations.
Thus better allocations and open trading environment might reverse the conclusions regarding
the significance of human capital, since the earlier doubts were based on older data.
Recently many developing countries have opened up their markets to global competition and
are installing the needed knowledge infrastructure. Has the time come to start investing in
human capital? Bassanini, Scarpetta and Visco (2000) and Bassanini and Scarpetta (2002, 2001,
BaS hereafter) use the data for OECD countries to find that human capital is statistically
significant. The issue is very important for developing countries. Mamuneas, Savvides and
Stengos (2006) also find a positive impact of human capital on economic growth in a group of
high, middle, and low-income countries across continents consistent with BaS.
This paper applies the BaS version of the augmented Solow model to a panel of eighteen large
developing countries over twenty years (1982-2001) measuring the importance of human capital
in explaining the GDP growth. An earlier version of this paper used Vinod's (2003, 2004) new
ME bootstrap for dependent data, which was developed as an alternative to the moving blocks
bootstrap for inference in financial economics. We note in passing that the use of modern
bootstrap inference tools support the results reported here. We are using a larger sample of
important developing countries with more recent data.
Recent less formal data analyses under the World Education Indicators (WEI) program has
developed newer education indicators for the following developing countries: Argentina, Brazil,
Chile, China, Egypt, India, Indonesia, Jamaica, Jordan, Malaysia, Paraguay, Peru, the
Philippines, the Russian Federation, Sri Lanka, Thailand, Tunisia, Uruguay and Zimbabwe. Soto
(2002), Karine Tremblay (2002) find that education receives 4.9 % of GDP in OECD, 4.2% in
WEI countries and 5.5% of national wealth in both. There is a more limited access to upper
secondary and tertiary education in WEI compared with OECD countries. Accumulation of
human capital improves economic growth through many channels and externalities. World Bank
(1999) finds that education is the single most important key to poverty alleviation and that
tertiary education increases income from 82% to 300% in WEI countries. World Bank (2000),
and Cohen & Soto (2001) find a positive correlation between the number of years of schooling
and per capita income growth from 1960 to 2000. Thus the informal analyses also point to a
need to do more formal study of this paper.
The plan of the remaining paper is as follows. Section 2 describes the data and briefly
reviews the endogenous growth theory behind the estimation equation. Section 3 describes our
estimates based on time series and panel data. Section 4 has our conclusions.
(2.1)
where and are parameters and A is the augmentation of labor. The original Solow model is a
special case of (2.1) with =0. First rescale the quantities in (2.1) to per unit of effective labor
input and use the lower case letters to denote: y = Y/AL, k = K/AL, and h = H/AL.
y (t ) k (t ) h(t )
(2.2)
Let us omit (t) from all expressions in the sequel whenever we do not expect any confusion.
Taking natural logarithms of both sides of (2.1) we have:
ln y = ln k + ln h
The derivative of both sides with respect to time (d/dt) yields:
(1/y) (dy/dt) = (/k)(dk/dt)+(/h)(dh/dt)
(2.3)
(2.4)
As in the Solow model, let L and A grow exogenously at rates n and g, respectively, by the
relations: L(t)= L(0)exp(nt) and A(t)=A(0)exp(gt). After taking logs, lnL(t)= lnL(0) + nt.
Differentiate with respect to t and denote the time derivative by a power to yield: L =nL.
Similarly, we have A=gA. If constant fractions (shares sk and sh) of output are invested in
physical and human capital, and if is the depreciation rate, then the evolution of k =K/AL or
effective labor is governed by:
(2.5)
(2.6)
The steady state (by definition) means k = 0 = h, implying that the right hand sides of (2.5) and
(2.6) are zero. Denoting W=1/(n+g+), steady state implies: yW=k/ sk =h/ sh. That is, we have
two useful relations: h=k sh/sk and k=hsk/sh. Now using (2.2) y= kh =k[(k sh)/sk] =k+ [ sh/sk]
we can equate the right side of (2.5) to zero while yielding a function of k alone as Wskk+
[ sh/sk] =k. This is rewritten as
k*=[Wsk1 sh =]1/(1)
And similarly,
h*=[Wsh1 sk =]1/(1)
(2.7)
(2.8)
Now, the steady state production function (2.3) becomes: ln y= ln k* + ln h*. Recall that
y=Y/AL, where A(t)=A(0)exp(gt) implies ln Y/L = lnA(0) +gt + ln k* + ln h*. After
substituting (2.7) and (2.8) this yields the following equation for steady state per capita income
y* depending on population growth n, growth rate g of A(t) and factor shares:
ln Y(t)/L(t)= lnA(0) +gt [(+)/(1)]ln (n+g+)+[/(1)] ln sk +
[ /(1)]ln sh.
5
(2.9)
This equation is an extension of the Solow model to include investment in human capital. Note
that the last three terms in (2.9) whose coefficients involve and add up to zero. A test of the
MRW model would be to check if this holds in observed data. Since the data on the rate of
human capital accumulation (=ln sh.) is harder to get, it is rewritten by MRW in terms of level of
human capital as:
ln Y(t)/L(t)= lnA(0) +gt [/(1)]ln (n+g+)+[/(1)] ln sk +
[ /(1)]ln h*.
(2.10)
Note again that an empirical test would be to check if the coefficients of the last three terms add
up to zero. The hypothesis is not rejected by the data in MRW.
Human capital is not subject to diminishing returns to scale, similar to land and some forms of
physical capital. Hence with the presence human capital in the production function it is tempting
to make economic growth explicitly endogenous. MRW incorporate endogeneity by studying
behavior out of steady state y*. They use a Taylor series approximation for ln y(t) near ln y* and
write :
ln y = [ln y* ln y]
where = (n+g+) (1). This is a differential equation whose solution is:
ln y(t) = ( 1 exp(t) ) ln y* + exp(t) ln y(0)
(2.11)
(2.12)
If (2.12) is a solution, the time derivative of the right side must equal the right side of (2.11).
Time derivative of exp(t) is exp(t). The time derivative of the right side of (2.12) is
exp(t) ln y* exp(t) ln y(0). Rewrite the time derivative by using (2.12) to replace its ln
y(0) term by ln y. Then the exp(t) term cancels and we have the right side of (2.8), proving
that (2.12) is indeed a solution for (2.11). The estimable equation is given upon substitution for
y* from (2.6) on the right side of (2.12).
The BaS derivation uses a different scaling. Instead of defining y=Y/AL they define it as Y/A
and similarly for capital and labor. This makes the derivations somewhat complicated. For
example, instead of (2.11) BaS have:
(2.13)
ln( y(t) / A(t) )ln( y(t1) / A(t1) )= ()[ln( y*(t) / A(t) )ln( y(t1) / A(t1) )]
where () = 1exp( t). BaS also replace the y* in (2.13) with an expression similar to (2.9) of
MRW and state a possible regression equation as:
(2.14)
ln y(t)= ln y(t-1)+[ /(1)]ln sk +[ /(1)] ln h + 1 ln h
2ln(g+n+) +3g+ ln A(0)+gt
where denotes the first difference, 1, 2 and 3 are functions , and (n+g+). Since the
depreciation rate is fixed over time, it merges with the intercept of the regression (2.14). An
advantage of this formulation is that it does not lend itself to any simple testable implications on
the coefficients. By contrast, sum of three regression coefficients must sum to zero for the MRW
model (2.10) to be empirically supported.
The contribution of endogenous growth theory in BaS formulation is that it helps the
econometrician with a list of candidate regressors: [ln y(t-1), ln s k , ln h, ln h, ln(g+n+), g, ln
A(0), and gt]. They also suggest using time dummies for a nonlinear trend. Moreover, BaS
simply add ( ln sk), ( ln n) as short run regressors and propose an error correction form
familiar from the unit root literature in econometrics. Since their additional regressors introduced
for econometric convenience are not in (2.14), one is free to exclude them.
Appendix 1 is devoted to data details including sources and precise definitions. GDP is Gross
Domestic Product, GDPm1 is lagged GDP by one year (m= minus), H is human capital as
measured by percentage of literate adults (15 years of age and above) in the population, K is
gross physical capital formation and EN is growth rate of labor. Coulombe et al (2004) conclude
that among alternative measures of H our choice outperforms measures based on years of
schooling. In any case, consistent and large enough (18 countries, 20 years) data for other
measures are unavailable. A study of 14 OECD countries (Coulombe, Tremblay and Marchand
2004) reports that measuring H based on literacy is superior. In future work we expect to study
several measures of H, since we wish to study, among other things, returns to higher education
needed for the computer age.
The prefix Ln stands for natural logarithm and the prefix D represents the first difference.
LnK is log K and DLnK is annual change in physical capital formation. Similarly, DLnH, is
annual change in human capital constructed from the data on H and DLnGDP is growth in GDP,
often available directly without using the first difference of log of GDP. TIM denotes a sequence
of numbers to represent t as the regressor in the last term of (2.14).
story that LnH is generally an important regressor. Symbols for regressors are described in
Section 2 and further details are given in Appendix 1 for data.
III.ii. Pooled Panel Data Estimates
Recall that our panel consists of the top eighteen countries ranked by the GDP. Recall that the
first column of Table 2 lists the GDP rank from the lowest to the largest and the second column
has the country name. Our panel data regression was implemented by LIMDEP (version 7)
software on Pentium III processor running at 850 MHz, Windows ME operating system. We find
that there is significant heteroscedasticity and correlation across countries. We assumed no
significant autocorrelation within country, to reduce the number of parameters to be estimated
with limited data.
Since LnGDP is highly correlated with LnGDPm1, the inclusion of lagged LnGDP causes
multicollinearity, and had to be deleted, even though the study by OECD did include it. Similarly
we are not including as regressors the first differences of LnH, LnK and EN, because they do not
contribute new information into the model, while making the estimates subject to collinearity.
Since the likelihood ratio statistic exceeds the critical value at the 99 percent level with n=18,
with n (n-1)/2=153 degrees of freedom. Since a textbook Table for the Chi-square distribution
usually goes only up to 100 degrees of freedom (df), we use a computer program for inverse of
the cumulative distribution function to find the relevant tabulated values (182.9 at the 95% level
and 196.6 at the 99% level) for 153 df. Our observed value of the likelihood statistic 344.51
obviously exceeds both the tabled critical values. Hence, we reject the null hypothesis that the
off-diagonal correlations are zero. Here we are referring to the 1818 correlation matrix over
time across 18 countries based on 20 time series data points whose off diagonals are found to be
nonzero.
The LIMDEP software recognizes this, allows for it, and also allows for
10
that human capital (LnH) has a statistically significant impact on economic growth in large
developing countries.
Therefore, our results support a recently introduced modest shift in the direction of increased
spending on education by the World Bank, international aid agencies, and developing countries
themselves. All OECD countries have at least 10 percent of their population with college level
education. Ireland is the best example of the fruits of investing in education in the last thirty
years. The remaining 170 countries can pursue that target by investing in human capital.
Generally, Asian countries that have invested in human capital since World War II have made
great leaps in their standard of living. Malaysia, Philippines, Thailand, Turkey, and China are
good examples of economies achieving growth based on human capital in recent years. India is
the most dramatic example of doubling its growth rate in recent years mainly from knowledgebased industries of computer software, call centers, pharmaceuticals, chemicals and
biotechnology in recent years. Educated but unemployed labor in 1990 is the proverbial cash
cow in 2006 where Indias foreign exchange reserves have increased from a mere $300 million
to over $140 billion in that time period. All of these countries also have statistically significant
impact of human capital on growth in this study. In most countries, a one percent increase in
literacy increases growth by 1.2 to 4.7 percent. Therefore, developing countries should increase
their human capital from their own savings, support from bilateral and multilateral sources of aid
and loans, as well as funding from private capital markets. Debt relief for the poorest countries
proposed by the developed countries and multilateral institutions can also be tied to building
education and technology resources for sustainable growth to increase incomes.
11
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13
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TABLE 1
Descriptive
Variable
YEAR
DLnGDP
LnGDPm1
LnK
LnH
EN
DLnK
DLnH
DLnN
Statistics
Mean
1991.5
3.84E-02
23.9029
3.0098
1.3771
2.3572
-1.20E-03
1.76E-02
-1.36E-02
Std.Dev.
5.7743
0.1715
1.8948
0.4434
0.6193
0.6705
0.1649
4.91E-02
0.1874
Minimum
1982
-0.8156
18.6998
1.2522
-0.5766
0.7744
-1.7333
-0.1362
-1.5059
Maximum
2001
0.6186
27.7079
4.3057
2.2146
3.8546
1.2158
0.5831
1.2541
14
Cases
360
360
360
360
360
360
360
360
360
TABLE 2
Individual Country OLS Time Series Regressions (1982-2001)
Summary Results
Dependent Variable: DLnGDP
ID
Countries
Intercept
LnGDPm1
LnK
LnH
EN
DLnK
DLnH
DEN
R-Sq
Adj-R Sq
Liberia
Coeff.
t
2.844188
0.763718
-0.18378
-1.5479
0.850592
1.667777
-0.70632
-0.46582
-0.33324
-2.03546
-0.73531
-0.69254
6.482192
2.812054
0.060822
0.44937
0.771849
0.595751
2.526382
Haiti
Coeff.
17.10295
-0.76389
-0.36752
0.811799
-0.34727
0.166721
-0.55029
0.555238
0.712267
0.507325
1.765259
3.213658
-3.16571
-2.84785
2.110672
-1.56156
1.330028
-1.04776
1.293837
Coeff.
5.754793
-0.10385
-2.21785
2.240809
-0.02262
1.333771
-2.09335
0.703918
0.637676
0.42632
3.01707
2.077411
-0.59945
-1.74584
1.945879
-0.15499
2.211765
-2.24967
2.277152
Coeff.
5.316072
-0.22075
-1.35155
2.764271
-0.15468
0.386958
-2.55857
0.267617
0.696827
0.485568
1.618101
1.563301
-0.9296
-1.61778
1.283343
-1.01342
0.676582
-1.06802
1.637614
Coeff.
17.91065
-0.91508
0.908691
1.675191
-0.58625
-0.57912
-0.32699
0.350069
0.77163
0.595413
2.522843
2.49458
-3.56561
1.750035
1.305504
-2.2288
-1.44204
-0.24845
1.119276
Coeff
4.561913
-0.30679
-0.01264
1.551377
-0.32333
0.596507
-1.47451
0.160945
0.855122
0.731234
4.664063
1.373485
-2.73633
-0.03914
1.228379
-1.32042
1.872855
-1.12789
0.855451
Coeff
4.702557
-0.38686
0.020985
0.735654
-0.12965
-0.30448
229.6473
0.301666
0.737966
0.544594
2.050018
65535
-2.41955
0.090002
1.505524
-0.36146
-1.4534
65535
0.603091
Coeff
12.38765
-0.86629
-0.59796
4.670403
0.504177
0.856897
-1.4774
0.351372
0.585542
0.34286
0.89442
2.178273
-1.95646
-1.38189
1.917687
0.916326
1.268339
-0.64935
0.497529
Coeff.
7.245669
-0.25491
-0.6129
0.099659
0.230001
0.279859
-0.19412
-0.13314
0.816142
0.666088
3.419663
2.776697
-2.22932
-2.75143
1.273624
0.990411
1.435144
-1.80896
-0.786
Coefficient
8.37849
-0.40531
-0.03466
2.047297
-0.86487
0.098744
-0.81743
0.92987
0.687617
0.472817
1.537498
1.666309
-1.23572
-0.17453
1.61478
-2.20295
0.50529
-0.51569
1.337544
Coefficient
10.98383
-0.67107
0.211058
3.121063
-0.26145
0.280698
-2.10993
0.471675
0.722937
0.522637
1.876874
2.746352
-2.32189
0.542052
2.84494
-0.93716
0.925049
-1.02231
2.002954
Coefficient
10.8547
-0.62564
0.864038
1.227914
-0.10946
-0.14891
-3.6204
-0.15784
0.802687
0.644306
3.105264
1.127195
-1.31836
1.239893
1.968267
-0.40436
-0.3912
-2.07292
-0.67194
Coeff.
45.38586
-1.35819
1.972853
-6.41564
-2.98819
0.561112
1.676904
-0.64292
0.811137
0.657943
3.297407
3.139299
-4.27225
2.388762
-1.78727
-2.41935
0.596
0.654846
-0.41152
Coeff
10.58024
-0.643
0.949305
1.235738
0.424454
0.178142
-0.62335
0.238457
0.835164
0.6975
3.952768
2.488969
-2.58529
2.320188
2.115887
1.403505
0.464717
-0.59871
0.758227
Coefficient
19.79648
-1.07293
-0.3936
3.956895
0.468387
1.001072
-2.04604
-0.28517
0.809808
0.655788
3.266036
3.311626
-3.73169
-1.07251
2.418098
1.098002
1.459086
-1.05206
-1.00807
Coeff
10.4787
-0.44722
0.101826
1.308209
-0.37596
-0.04282
-2.18095
0.002251
0.7609
0.578969
2.357354
Uganda
Jamaica
5
6
7
8
9
10
11
12
13
14
15
16
Kenya
Uruguay
Nigeria
Peru
Pakistan
Philippines
Malaysia
Thailand
Indonesia
Turkey
Argentina
India
17
18
Mexico
China
1.824411
-1.88273
1.187682
1.912632
-1.93962
-0.76941
-0.64877
0.015754
Coeff
13.34606
-0.70025
1.060475
1.46077
-0.2704
0.062396
-0.75215
-0.29389
2.740183
-3.27664
2.391778
2.783062
-1.25848
0.101945
-0.83039
-0.54477
Coeff
4.029335
-0.21965
-0.14529
1.408718
0.028657
-0.48438
-2.63312
0.126304
1.573718
-2.50252
-0.37946
1.691618
0.22007
-1.63898
-2.27634
0.99338
16
0.859031
0.737934
4.82715
0.741217
0.549402
2.090182
TABLE 3
Panel Data Estimation with 4 regressors
Variable
ONE
LnK
LnH
EN
TIM
Coeff.
0.286022
-0.07243
0.024118
-0.03092
0.000853
Std.Err.
3.96E-08
1.21E-08
2.01E-08
8.02E-09
1.31E-09
t-ratio
7.22E+06
-5.97E+06
1.20E+06
-3.86E+06
648974
P-value
0
0
0
0
0
TABLE 4
Panel Data Estimation with 4 regressors allowing countryspecific autocorrelations
variable. Coeff.
Std.Err.
ONE
0.138425 7.30E-09
LnK
0.008574 1.84E-09
LnH
0.008319 2.71E-09
EN
-0.02699 1.07E-09
TIM
-0.00436 1.92E-10
t-ratio
1.90E+07
4.66E+06
3.07E+06
-2.51E+07
-2.27E+07
P-value
0
0
0
0
0
TABLE 5
Panel Data Estimation with 7 regressors allowing countryspecific autocorrelations
Variance Coeff.
Std.Err.
ONE
0.162965 1.28E-07
T
-0.00089 2.48E-09
LnK
0.000986 3.51E-08
LnH
0.008055 4.82E-08
EN
-0.03861 2.16E-08
DLnK
0.000881 2.46E-08
DLnH
-0.18013 6.98E-08
DEN
0.051055 1.38E-08
t-ratio
1.27E+06
-359556
28046
167129
-1.79E+06
35775.7
-2.58E+06
3.70E+06
P-value
0
0
0
0
0
0
0
0
FIGURE 1.
15
8
10
15
4
BETA
5
0
(5)
3
1
15
17
19
21
23
11
12
10
7
14
25
27
(10)
13
(15)
(20)
LnGDP
18
17
16
18
29
4
3
11
3
STUDENT-t
12
17
14
16
18
10
9
0
15.0000 17.0000 19.0000 21.0000 23.0000 25.0000 27.0000 29.0000
1
-1
13
-2
-3
LnGDP
FIGURE 3.
6
BETA
15
19
18
16
15
14
11
17
13
APPENDIX 1 (DATA)
The main source of data for this study is the World Banks World Development Indicator (WDI),
report for 2003. First, we provide the definitions of the variables used and indicate the notation
used for them in brackets in titles. We transform many variables by using logarithms and
inserting Ln as a prefix it its name. The prefix D in the names of variables stands for the first
difference. The LIMDEP software does not allow variable names to have spaces, symbols such
as minus and the number of characters must not exceed 8. Also, the name n for growth rate of
labor is not allowed in the software, so we made it EN and replace the minus symbol for lagged
variable by lower case m.
GDP (current US$): [denoted by GDP]
Definition: GDP is the sum of gross value added by all resident producers in the economy plus
any product taxes and minus any subsidies not included in the value of the products. It is
calculated without making deductions for depreciation of fabricated assets or for depletion and
degradation of natural resources. Data are in current U.S. dollars. Dollar figures for GDP are
converted from domestic currencies using single year official exchange rates. For a few countries
where the official exchange rate does not reflect the rate effectively applied to actual foreign
exchange transactions, an alternative conversion factor is used.
Source: World Bank national accounts data.
GDP growth (annual %): [Denoted by DLnGDP]
Definition: Annual percentage growth rate of GDP at market prices based on constant local
currency. Aggregates are based on constant 1995 U.S. dollars. GDP is the sum of gross value
added by all resident producers in the economy plus any product taxes and minus any subsidies
20
not included in the value of the products. It is calculated without making deductions for
depreciation of fabricated assets or for depletion and degradation of natural resources.
Source: World Bank national accounts data.
Adult Illiteracy rate, (%) [denoted by H]:
Definition: Adult illiteracy rate is the percentage of people ages 15 and above who cannot, with
understanding, read and write a short, simple statement on their everyday life.
Source: United Nations Educational, Scientific, and Cultural Organization.
Gross capital formation (% of GDP): [denoted by K]
Definition: Gross capital formation (formerly gross domestic investment) consists of outlays on
additions to the fixed assets of the economy plus net changes in the level of inventories. Fixed
assets include land improvements (fences, ditches, drains, and so on); plant, machinery, and
equipment purchases; and the construction of roads, railways, and the like, including schools,
offices, hospitals, private residential dwellings, and commercial and industrial buildings.
Inventories are stocks of goods held by firms to meet temporary or unexpected fluctuations in
production or sales, and work in progress. According to the 1993 SNA, net acquisitions of
valuables are also considered capital formation.
Source: World Bank national accounts data.
Growth Rate of Labor: [denoted by EN]
Growth rate of labor force is reported as WDI national data on labor force compiled by the
World Bank and denoted there as (n). Since we use n to denote the number of countries, we have
changed that notation.
21
Literacy Rate
67.8
96.91
86
87.3
48
44.23
95.9
85.77
91.89
55.99
62.75
Rep.
Congo, Rep.
Egypt
Haiti
India
Indonesia
Jamaica
Kenya
Liberia
Malaysia
Mali
Mexico
Nigeria
Pakistan
Peru
Philippines
South Africa
Sri Lanka
Thailand
Turkey
Uganda
Uruguay
81.81
56
50.83
58.01
87.34
87.28
83.34
54.8
87.88
26.4
91.43
65
44.04
90.2
95.15
85.61
91.86
95.65
85.51
67.97
97.64
3103350
65176940
8132000
1.032E+09
208981100
2590000
30735760
3213770
23802360
11094340
99419690
129874976
141450100
26347000
78317030
43240000
18732000
61183900
66229000
22788000
3361000
22