A Term Paper: Roles Of Human Capital Accumulation In Economic Growth By Chari Boru, November, 2023

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 A Term Paper: Roles Of Human Capital Accumulation In Economic Growth By Chari Boru, November, 2023

CONTENTS PAGE

1. INTRODUCTION...............................................................................................................1

2. OVERVIEW OF THEORETICAL AND EMPERICAL ASPECTS OF HUMAN

CAPITAL ACCUMULATION AND GROWTH MODELS.....................................................3

2.1. Definitions of Human Capital Accumulation...........................................................3

2.2. Concept of Human Capital Accumulation and Its Measurements...........................3

2.3. Fundamental View of Different Scholars With Respect to Human Capital

Accumulation.......................................................................................................................7

2.4. Theories of Human Capital Accumulation and Growth...........................................8

2.4.1. Human Capital and Growth: A Review of Microeconomic Literatures........8

2.4.2. Human Capital and Growth: A Review of Macroeconomic Literature.........9

2.5. Sources of Human Capital Accumulation..............................................................11

2.5.1. Expenditure on Education...........................................................................11

2.5.2. Expenditure on Health.................................................................................12

2.5.3. Expenditure on Information.........................................................................12

2.5.4. On Job Training...........................................................................................13

2.5.5. Expenditure on Migrations..........................................................................13

2.6. Roles of Human Capital Accumulation in Economic Growth...............................14

2.6.1. Improvement in Human Capital Productivity.............................................14

2.6.2. Improvement in Quality Of Life..................................................................15

2.6.3. Modernization of Attitudes..........................................................................15

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 A Term Paper: Roles Of Human Capital Accumulation In Economic Growth By Chari Boru, November, 2023

2.6.4. Effective Use of Physical Capital................................................................16

2.6.5. Important Role in the Development Strategies............................................16

2.6.6. Improve In Technology...............................................................................17

2.6.7. Increase in Participation and Equality.........................................................17

2.6.8. Increase in Life Expectancy........................................................................18

2.6.9. Control in Population Growth.....................................................................19

3. SUMMARY AND CONCLUSIONS................................................................................20

4. REFERENCES..................................................................................................................21

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 A Term Paper: Roles Of Human Capital Accumulation In Economic Growth By Chari Boru, November, 2023

1. INTRODUCTION

“A nation’s true wealth is neither in its land and water, nor in forests and mines, nor in its
flock and herds, nor in dollars, but in its wealthy and happy men, women, and children. ”
Prof. Whipple

Economic Growth has posed an intellectual challenge ever since the beginning of systematic
economic analysis. Economic growth is a result of efficient utilization of resources. It is a
symbol of prosperity and economic development. Many indicators stimulate the growth of an
economy; among them human capital is the most important one. It is helpful to accelerate the
output level, boosts labor’s productivity, and enhance the efficiency of available resources.

In contemporary economics literatures human capital accumulation is considered as one of the

major
determinants of economic growth. Traditionally, economic theory has given emphasis on
physical capital accumulation as the most important source of economic growth, at least in the
short-run and exogenous technical progress being the long-run determinant of growth. The
exogeneity of technological progress in the neoclassical growth model and the difficulty of
explaining long-term economic growth (because of diminishing returns to physical capital)
have restricted the analytical capacity of the neoclassical model and its empirical verification.
The endogenous growth models developed by Romer (1986) and Lucas (1988) were giving
emphasis on human capital accumulation and its roles for economic growth (Mankiu, 2009).

Economic growth in its simplest form is defined in the economics literature as the increase in
goods and services produced in a country. It is also defined as a continuous increase in gross
domestic product per capita. Such growth is an indicator of the development level desired by
every country in an internationally competitive environment.

Labor is a production factor used to improve economic growth through the production of
goods and services. Investments in labor improve the productivity of human capital. The
knowledge, skills, experience, and similar assets of individuals significantly affect production
factors through labor and accelerate economic growth (Koç, 2013). In this way, every
supplementary asset to labor speeds up economic growth.

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 A Term Paper: Roles Of Human Capital Accumulation In Economic Growth By Chari Boru, November, 2023

The theory of human capital regards the individual not only as a component of the production
function but also as a dynamic input in the realization of economic progress (Özşahin &
Karaçor, 2013). Such dynamism attributed to the individual represents the knowledge and
technology factors in economic growth models.

There are several studies in the literature which investigate the relationships between human
capital and economic growth from various aspects. Considering the basis of economic growth
models, it was observed that Smith and Ricardo-like economists were the pioneers of
Classical Growth Theories. They investigated the growth processes of countries and
provided significant contributions to the relevant literature.

In a Neo-Classical Growth Model (NCGM), Solow (1956) considered technology as an

External Factor and did Not Explain the Emergence of Technology in his model. Later,
technology was included in economic models as an endogenous factor and the significance of
human capital using information was proposed (Taban & Kar, 2006).

In Endogenous Growth Model (EGM), Romer (1986; 1990), Lucas (1988), and later
economists investigated economic growth through physical and human capital accumulation.
Besides labor and capital, human capital had a significant place in endogenous growth models
and additionally the effects of human capital on economic growth were pointed out in
previous studies in the literature (Telatar & Terzi, 2010).

This Term paper has aimed at presenting the roles of human capital accumulation in economic
growth. Initially, it provide a good look at the subject under introduction section and
continued to next section with Definitions and Concepts of Human Capital Accumulation
and Theories of Growth Models. Then, the Sources of Human Capital Accumulation
(HCA) was highlighted. Furthermore, the Roles of Human Capital Accumulation in
Economic Growth was pointed out. Finally, the summary and conclusion were drawn
accordingly.

The theory of human capital regards the individual not only as a component of the production
function but also as a dynamic input in the realization of economic progress (Özşahin &
Karaçor, 2013). Such dynamism attributed to the individual represents the knowledge and
technology factors in economic growth models.

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 A Term Paper: Roles Of Human Capital Accumulation In Economic Growth By Chari Boru, November, 2023

2. OVERVIEW OF THEORETICAL AND EMPERICAL

ASPECTS OF HUMAN CAPITAL ACCUMULATION AND
GROWTH MODELS

2.1. Definitions of Human Capital Accumulation

The term “Human Capital" first appeared in 1961 by Nobel-prize winner economist Theodore
W. Schultz, in his seminal (influential) article ''Investment in Human Capital''. The human
capital theory is the most influential economic theory of education, and it becomes a key
determinant for economic performance.

 Human capital accumulation: Human capital contain education, training, first-

contact treatment, and adding to a person's understanding and health gather or amass
one thing work and even containing harmful addictions within the means that hot and
dependence on an extrajudicial substance (Gary Becker, 1992).
 Gross domestic product (GDP): the total final output of goods and services produced
by the country’s economy, within the country’s territory, by residents and
nonresidents, regardless of its allocation between domestic and foreign claims
(Michael.P. Todaro).

2.2. Concept of Human Capital Accumulation and Its Measurements

Human capital represents the productive capacity of the people. Just like land or machinery,
workers are an essential requirement for production. As such, human capital denotes the skill
of the labor force, how well and efficiently workers can transform raw materials and capital
into goods and services. These skills such as literacy, numeracy, cognitive, and analytical
skills can be learned and honed through education; thus, any discussion of human capital has
to touch upon education (Son, 2010).

Human capital plays a critical role in economic growth and poverty reduction. From a
macroeconomic perspective, the accumulation of human capital improves labor productivity;
facilitates technological innovations; increases returns to capital; and makes growth more

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sustainable, which, in turn, supports poverty reduction. Thus, human capital is regarded at the
macro level as a key factor of production in the economy wide production function.
From a microeconomic perspective, education increases the probability of being employed in
the labor market and improves earnings capacity. Thus, at the micro level, human capital is
considered the component of education that contributes to an individual’s labor productivity
and earnings while being an important component of firm production (Andrawetal, 2001).

Although the conceptual definition of human capital is clear, its measurement is difficult
because it is practically impossible to observe individual skill, and even harder to design a
metric that is comparable across individuals and countries. Thus, various proxy measures of
human capital have been proposed in the empirical literature, such as literacy rates (Azariadis
and Drazen 1990); school enrollment rates (Barro 1991, Mankiw et al. 1992); years of
schooling (Barro and Lee 1996, 2001, and 2010; Cohen and Soto 2007); and test scores
(Hanushek and Kimko 2000, Hanushek and Woessmann 2009). While the literacy rate, which
measures the proportion of the population who can read and write, is an important measure of
well-being, it does not measure the educational attainment or skill level of the workforce. On
the other hand, school enrollment rate is a relevant metric only for school-age children and
has little relevance for the workforce.

Human capital became especially popular in historical research after the rise of growth theory
in the 1950s and the human capital theory advocated by Becker (1964) and Schultz (1961).
Broad measures of human capital in economic historical research the notion of human capital
arose out of the awareness that physical capital alone was not enough to explain long run
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, ability and others aspect.

Human capital consists of the abilities, skills, and knowledge of particular workers. Thus, like
conventional economic goods, human capital is rival and excludable. If, for example, an
engineer's full effort is being devoted to one activity that precludes the use of his or her skills
in another. In contrast, if an algorithm is being used in one activity, that in no way makes its

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use in another more difficult or less productive. The models of this section therefore resemble
the Solow model (and the Ramsey and Diamond models) in assuming constant returns to
scale. Thus they do not provide candidate explanations for worldwide economic growth.
But the models differ from the Solow model in implying that moderate changes in the
resources devoted to physical and human capital accumulation may lead to large changes in
output per worker (Romer, 1996).

Human capital is only one factor in accounting for differences in growth rates across
countries. While low starting levels of human capital may have hindered Africa’s economic
growth, its poor performance cannot be attributed to a lack of subsequent investment in
human capital. A more important proximate cause is the low level of investment in physical
capital. Low rates of investment in physical capital have implications for the rates of return on
human capital, particularly education. The conventional wisdom that the rates of return to
education are very high is shown not to have held in the context of many African labor
markets in the 1980s and 1990s. If human and physical capitals are complements then the
policy problem is enabling them both to grow rapidly. Returns to human capital investment
depend on the success of policies in promoting the growth of physical capital. There is
evidence from micro studies that the income returns to education reflect the effects of
education in raising productivity. These effects have been observed for both industry and
agriculture. For industry it is the secondary level which is important while for agriculture it is
primary education.
Less research has been done on the productivity effects of health and nutrition in Africa. The
limited evidence is consistent with conclusions from other developing countries that these
effects may be substantial. The role of human capital in Africa’s economic development is
complex. Inadequate investment in education and health are clearly not the only cause of
Africa’s economic difficulties. However, the poor health and education of Africa’s workers is
one factor explaining her low income.
Government investment in the social sectors is likely to be economically productive and
indeed is likely to bring more direct benefits to the people than many other forms of
government expenditure.

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Government investment in both education and health may be particularly important as there
are indirect benefits of such investments which individuals may not allow for in their
investment decisions. Social rates of return may substantially exceed private rates (Simon,
1998).
International differences in income per person can be attributed to either:
a. Differences in the factors of production, such as the quantities of physical and human
capital, or
b. Differences in the efficiency with which economies use their factors of production.

That is, a worker in a poor country may be poor because he lacks tools and skills or because
the tools and skills he has are not being put to their best use. The Solow model makes the
simplifying assumption that there is only one type of capital. Recent research on economic
growth has emphasized that human capital is at least as important as physical capital in
explaining international differences in standards of living. One way of modeling this fact is to
give the variable we call “capital” a broader definition that includes both human and physical
capital (Mankiu, 2009).

One, suggested by Mankiw, Romer, and Weil (1992), is to argue that there is some minimum
level of human capital the ability to talk, to read and write, and so on-that most individuals
obtain more or less automatically.

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2.3. Fundamental View of Different Scholars With Respect to Human

Capital Accumulation

Human capital theory assumes that investment in education is necessary to acquire skills and
training which, in return, will increases individual capital (Blundell et al., 1999). Tan (2014)
adds, these knowledge and skills will increase his/her productivity in the work place. Five
fundamental views concerning Humana Capital accumulations are discussed as follows:

a) The Becker view: Human capital accumulation is directly useful in the production
process. More explicitly, human capital increases a worker’s productivity in all tasks,
though possibly differentially in different tasks, organizations, and situations. In this view,
although the role of human capital in the production process may be quite complex, there
is a sense in which we can think of it as represented (representable) by a one-dimensional
object, such as the stock of knowledge or skills, h, and this stock is directly part of the
production function.
b) The Gardener view: According to this view, we should not think of human capital as
one-dimensional, since there are many dimensions or types of skills. A simple version of
this approach would emphasize mental vs. physical abilities as different skills. Let us dub
this the Gardener view after the work by the social psychologist Howard Gardener, who
contributed to the development of multiple-intelligences theory, in particular emphasizing
how many geniuses/famous personalities were very “unskilled” in some other dimensions.
c) The Schultz/Nelson-Phelps view: Human capital is viewed mostly as the capacity to
adapt. According to this approach, human capital is especially useful in dealing with
“disequilibrium” situations, or more generally, with situations in which there is a changing
environment, and workers have to adapt to this.
d) The Bowles-Gintis view: “Human Capital” is the capacity to work in organizations,
obey orders, in short, adapt to life in a hierarchical/capitalist society. According to this
view, the main role of schools is to instill in individuals the “correct” ideology and
approach towards life.
e) The Spence view: Observable measures of human capital are more a signal of ability
than characteristics independently useful in the production process.

Despite their differences, the first three views are quite similar, in that “human capital” will be
valued in the market because it increases firms’ profits. This is straightforward in the Becker

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and Schultz views, but also similar in the Gardener view. In fact, in many applications, labor
economists’ view of human capital would be a mixture of these three approaches. Even the
Bowles-Gintis view has very similar implications. Here, firms would pay higher wages to
educated workers because these workers will be more useful to the firm as they will obey
orders better and will be more reliable members of the firm’s hierarchy.

The Spence view is different from the others, however, in that observable measures of human
capital may be rewarded because they are signals about some other characteristics of workers.

2.4. Theories of Human Capital Accumulation and Growth

In the wealth of nations, Adam Smith (1776) included human capital in his definition of
capital. When it was adopted by Theodore W. Schultz (1960), for the first time Becker (1964)
and Mincer (1984) deepened this concept and showed how the concept of investment in
human capital could influence future real income through embedding resources (skills &
knowledge) in individuals.

2.4.1. Human Capital and Growth: A Review of Microeconomic Literatures

In the 1950s and 1960s, Theodore Schultz and Gary Becker introduced the concept of
human capital to demonstrate how individuals’ investment in them was analogous to firms’
investments in physical capital. In other words, just as firms decide to invest in new
machinery to increase their production, individuals can invest in their own education to gain
future benefits. As such, human capital can be seen as a means of production – into which
investment yields additional outputs.

As Becker notes: “For a while economists were relating differences [in economic well-being]
primarily to differences in the amount of physical capital since richer people had more
physical capital than others. It has become increasingly evident, however, from studies of
income growth, that factors other than physical resources play a larger role than formerly
believed, thus focusing attention on less tangible resources, like the knowledge possessed. A
concern with investment in human capital, therefore, ties in closely with the new emphasis on
intangible resources and may be useful in attempts to understand the inequality in income
among people,” – Becker (1962).

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Schultz (1961) expanded on the meaning of investment to include all activities that improved
an individual’s skills and productivity, including through health expenditures; on-the-job
training; formal education; study programs for adults (such as agricultural extensions); and
migration. He also included both direct and indirect costs while obtaining human capital, such
as foregone earnings, lost leisure time.

Their work was followed by Mincer (1974), who pioneered a model, called the earnings
function, on estimating rates of returns on years of schooling and on-the-job training.
Mincer’s work also provided important implications for understanding the dynamics between
human capital investment and earnings throughout an individual’s lifecycle, showing that
one’s wages rise over the lifecycle at a decreasing rate, yielding a concave earnings profile for
most. The earnings function has become the accepted standard for labor analysis.

2.4.2. Human Capital and Growth: A Review of Macroeconomic Literature

Whereas the microeconomic literature is aimed at estimating the relationship between

education and income and productivity, the macroeconomic literature is focused on
understanding how the social stock of human capital is central to economic growth. Human
capital, however, plays a different role in neoclassical and endogenous growth models.

2.4.2.1. Theory of Classical Growth Model

The classical theory of growth combines the ideas of Adam Smith, Ricardo, and Malthus.
These economists considered economic growth as a process related to the rate of
technological progress and population growth rate. According to them, technological progress
depends on capital accumulation at any given period remains at the forefront for some time.

2.4.2.2. Neo-Classical (Or Solow) Growth Model

In neoclassical growth theory, human capital accumulation is a factor of production along

with physical capital. In other words, human capital accumulation would raise the marginal
product of physical capital, and thus induce further accumulation of physical capital, thereby
raising the total output. On the other hand, the growth of physical capital would raise the
marginal product of human capital, thereby increasing the demand for human capital (as
opposed to the unskilled labor (Mincer, 1974).

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However, in the long-run, an economy will reach steady-state growth, and any increase in the
growth rate can only be driven by exogenous technical progress. To this effect, Mankiw,
Romer and Weil (1992) developed what is known as the augmented Solow model or MRW
model, and found evidence for conditional convergence, which could account for 78 percent
of the cross-country variance of output per capita in 1985. In addition, by using data from
across regions in the US and Japan, Barro and Sala-i-Martin (1995) conducted convergence
tests and showed that the MRW model was consistent with the speed of convergence.

2.4.2.3. Endogenous Growth Model

Despite its contributions to modern economics, the neo-classical model was nonetheless
unable to explain why or how technological progress occurs. Furthermore, it was not able to
explain the large differentials in income observed around the world. The model implied more
rapid convergence of incomes than seem to be occurring, particularly between high-income
and low-income countries.

The new theory (Endogenous growth model), in response to neoclassical growth model
provides a theoretical framework for analyzing endogenous growth, persistent GNP growth
that is determined by the system governing the production process rather than by forces
outside that system. The roots of the study encompass the endogenous growth model
developed by Romer (1986, 1990) and Lucas (1988) which argue that a permanent increase in
growth rate depends on the assumption of constant and increasing returns to capital.
Endogenous growth theory revolves around the presumption that economic growth is
primarily the wholesome effect of endogenous factors and not external factors. Aghion and
Howitt (1998) noted that the role of human capital in endogenous growth theory can be
divided into two major categories.

 The first category sees sustained growth as primarily being driven by the HCA. As
such the differences in growth rates across countries are attributed to the rates in
which human capital is accumulated. This approach is attributed to Robert Lucas
(1988) who built upon contributions of Hirofumi Uzawa (1965).
 The second category of models (initiated by Nelson-Phelps in 1966), attributes growth
to the existing stock of human capital, which generates innovation, which in turn,
leads to technological progress and sustained growth.

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Paul Romer further developed this growth model to give an endogenous explanation of the
source of technological change, implying that an economy with a larger stock of human
capital will experience faster growth. Barro (1990) extended the endogenous growth models
to include government services, and predicted that public expenditures and taxation would
both have temporary and permanent effects on growth.

Bleaney et al (2001) tested this model in OECD countries, and their results supported Barro’s
model.

Easterly and Romelo (1993) further found that investments in transportation and
communication were consistently correlated with growth, although the effects of taxation
were less so.

2.5. Sources of Human Capital Accumulation

The emerging technologically-centered economic system of the modern world calls for the
acquisition and mastery of new knowledge, or for the upgrading of skills. Traditional patterns
of trade – for the most part based on cost advantages - are being replaced by trade patterns
based on ‘non-price’ competitiveness (quality, information-intensity). The need for
appropriate human capital development and accumulation is a prerequisite for modern
economic growth in both developed and developing economies. Human capital of a country
can be increased with the help of different ways. Some of the sources of human capital
accumulation formation are as follows:

2.5.1. Expenditure on Education

The most effective way to improve and enlarge the size of the nation’s productive workforce
is by spending on education which makes it a significant source of human capital formation.
Countries and people spend money on education with the objective of:

 Enhancing their potential earnings

 Producing technological expertise and human resources that are ideal for boosting
labor productivity and thus, supporting the rapid development of the economy.
 Getting better social standing and priced.
 Facilitating adaptation of new idea and technologies

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2.5.2. Expenditure on Health

Complete physical, mental, and social well-being is a condition of being in good health. The
quality of the man power is negatively impacted by poor health and underemployment
because sick workers who lack access to medical facilities are compelled to take time off of
work which reduces productivity. The quality of HCA improves when individuals have access
to enough food and good nutrition, as well as adequate health and sanitation services.
Therefore, a healthy person makes a more substantial GDP contribution than a sick person.

Different expenditure on health includes Preventive care (Vaccination), Curative medicine

(used when unwell), Social medicine (health literacy promotion), clean drinking water supply,
and Good Sanitation facilities.

The idea that HCA could be improved by investing in the population’s health was already
advanced in the sixties by Schultz (1961) and Mushkin (1962) and gained definitively
relevance after Grossman’s (1972) pioneer work. Indeed, Grossman (1972) was the first to
consider explicitly this issue, relating a higher preference for health (as a consumption good)
to more educated individuals. According to the same author, health can be also seen as a
capital good, since the production of health determines how much time is spent in labor.

2.5.3. Expenditure on Information

People spend money to learn about the labor market and educational institutions. For
example, people need information regarding different salary levels associated with different
types of jobs, etc. this type of information is required to make decisions about education
investment as well as to make optimal use of learned skills and help people to realize their
productive potential. Thus, expenditure on acquiring information regarding labor markets and
other sectors such as education and health is a source of human capital formation.

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2.5.4. On Job Training

On-the-job training is an essential source of human capital accumulation as the return on

investment in the form of increased labor productivity is greater than the cost. This can
be happen in several forms:

 Workers may be trained in the firm under the supervision of a qualified worker,/
 Workers can be sent off campus for training

Firms incur costs in each of these scenarios. Once the training is over, the firms require their
workers to work for set amount of time in order to enjoy the benefits of increased production.

2.5.5. Expenditure on Migrations

People migrate in search of occupations that pay more than what they earn in their home
places. For example, Engineers and physicians migrate to other countries in search of a higher
salaried job. There has been an amazing brain drain from Africa. The rest of the world has
benefited from this, but it has not been to the benefit of Africa” (Jaycox, 1993). Most of the
“brain drain” occurs when Africans leave to study abroad. Consequently, improving higher
education in Africa would go some way to reducing the problem. Increasing the extent of cost
recovery in higher education would help pay for such improvements and would also reduce
one major reason for being concerned about the “brain drain”. Introducing a system of
“bonding” students, so that they would have to pay back the cost of their studies if they
emigrate might be an alternative or additional solution (Bhagwati and Partington, 1976).

The international brain drain has in fact influenced the style and approach of educational
systems in the developing world. The brain drain, broadly construed, has diverted the
attention of the scientists, physicians, architects, engineers, and academics that remain in their
homeland from important local problems and goals. These include the development of
appropriate technology; the promotion of low cost preventive health care; the construction of
low cost housing, hospitals, schools, and other service facilities; the design and building of
functional yet inexpensive labor intensive roads, bridges, and machinery; the development of
relevant university teaching materials; and the promotion of problem-oriented research on
vital domestic development issues (Todaro, 2012).

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2.6. Roles of Human Capital Accumulation in Economic Growth

“Given the initial level of per capita GDP, the growth rate is substantially positively related
to the starting amount of human capital. Thus poor countries tend to catch up with rich
countries if the poor countries have high human capital per person (in relation to their level
of per capita GDP), but not otherwise. As a related matter, countries with high human capital
have low fertility rates and high ratios of physical investment to GDP.” (Barro, 1991).

Economic growth is defined as an increase in a country’s real national income. A literate

person contributes more to economic growth than a person who is illiterate. Therefore, human
capital accumulation is important for an economy. Some of the roles that describe its
importance are:

2.6.1. Improvement in Human Capital Productivity

Human capital accumulation through education investment increases productivity and output
by assuring workers are aware and skilled. People’s technical skills which are acquired only
through investment in education or training, as well as their general health, are essential for
increased productivity and quality output. Human capital accumulation leads to increase in
efficiency of labor. Skilled and technically knowledgeable workers are much more efficient
than the unskilled workers. Moreover, availability of adequate health facilities and stamina of
the laborers. They can work larger and harder.

Economic growth and functioning of a country relies on its physical capital accumulation and
human capital accumulation (Adekola 2014 & Adawo 2011).

Solow (1956) and Swan (1956) economic growth model technological progress is a source of
economic growth in the long run. However, their economic growth models do not provide
satisfying answer for source of economic growth. If physical capital earning in total income is
modest, physical capital accumulation does not account for significant part of long run
economic growth (Romer 2006).

A study by Kidanemariam. G (2013) found that improving the production of human capital
contributes to change in productivity and growth in performance, which is close to the theory
of endogenous growth.

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2.6.2. Improvement in Quality Of Life

The degree of education, health, and skill development of a person determines the quality of
life. Human capital accumulation not only makes individuals more productive and creative,
but it also impacts their lives for the betterment. People’s quality of life improves as a result
of better education, health and skill development. Human capital accumulation allows people
to enjoy greater standard of living since they are able to generate higher salaries for
themselves which help in economic development.

Human capital accumulation helps in improving the quality of life by increasing life
expectancy, literacy ratio, and level of per capita income and by providing adequate water
supply in housing facilities, etc, to the people. In short, human capital accumulation plays an
important role in improving productivity and raising the level of production.

2.6.3. Modernization of Attitudes

People become more knowledgeable, competent, and modern as a result of investments in

human capital. It changes their perspective and attitude towards multiple aspects of the
country’s growth such as traditions and job markets. It leads to the establishment of modern
society for economic development.

Human capital is an important tool for bringing about economic change in the society.
Analyses based on Germany in the context of religious and institutional change provide
further evidence supporting the link between human capital and growth. Cantoni and
Yuchtman (2014) argue that medieval universities in 14th century Germany played a causal
role in the commercial revolution.

Becker and Woessmann (2009) use county-level data from late- 19th century Prussia to
provide evidence to suggest that Protestant economies prospered because instruction in
reading the Bible generated the human capital crucial to economic prosperity.

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 A Term Paper: Roles Of Human Capital Accumulation In Economic Growth By Chari Boru, November, 2023

2.6.4. Effective Use of Physical Capital

A person who is properly trained and has the necessary skills will have a better understanding
of the physical tools and equipment, as well as the best methods to use them.

Modern techniques have become more complex and sophisticated. It is necessary to absorb
these techniques so as to increase production and productivity. We need knowledgeable and
skilled workers who can make better use of these techniques. Education and skilled workers
can easily understand the problems involved in the use of these techniques. They can operate
these techniques easily and more efficiently. This enhances productivity and accelerates the
pace of economic growth and development.

In models that include human capital such as Romer (1990) and Becker, Murphy, and Tamura
(1990), an increase in the initial stock of human capital tends to raise the ratio of physical
investment to GDP.

2.6.5. Important Role in the Development Strategies

In its seventh plan, 1985-1990, India prioritized human capital. Trained and educated
individuals, in accordance with human resource development, have become an asset in
enhancing economic growth and assuring social transformation in the desired direction.

In Hsieh et al. (2019), the misallocation of talent results from barriers to entry into certain
occupations by distinct demographic groups. They estimate the impact of the misallocation of
talent on growth in the United States using a Roy (1951) model of occupational choice where
frictions prevent the optimal accumulation of human capital amongst white women, black
men and black women, and also their occupational choices. They estimate that 20-40% of
growth in aggregate output per worker in the US (over 1960-2010) can be explained through
an improved allocation of talent.

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 A Term Paper: Roles Of Human Capital Accumulation In Economic Growth By Chari Boru, November, 2023

2.6.6. Improve In Technology

The education system focuses on boosting human resource productivity through technological
advancement at all levels of work. It promotes people’s receptivity to modern and scientific
concepts. Since independence, the number of technical and professional educational
institutions has grown significantly. Thus, with an advanced educational system, the
utilization of advanced technologies in process.

Nelson and Phelps (1966) focus more on the process of diffusion or technology transfer. They
argue that “production management is a function requiring adaptation to change and [...] the
more
educated a manager is, the quicker will he be to introduce new techniques of production”.
While the focus here is on production efficiency and technology adoption, these ideas can be
applied to other drivers of TFP highlighted in recent research, such as management practices
(Bloom and Van Reenen, 2007).

Benhabib and Spiegel (1994) provide empirical support for a Nelson and Phelps (1966),
technological diffusion process at the country level. They argue that human capital may
encourage the accumulation of physical capital due to complementarities. In particular, the
marginal product of physical capital in developing countries may be low, despite its scarcity,
due to a lack of complementary factors such as human capital (Lucas, 1990).

2.6.7. Increase in Participation and Equality

A person with the ability to acquire knowledge and specialist skills has higher employment
opportunities. This increase production efficiency and worker participation in economic,
social, and political activities. This high rate of participation shows that a country has a high
degree of economic and social equality. A multi-country study in Kenya, Tanzania and
Uganda (Davis et al., 2016) demonstrated that participation in FFS increased production,
productivity and income across all three countries. While greater overall changes were
observed in Kenya and Tanzania, female-headed households in Uganda benefitted more so
than male-headed households.

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 A Term Paper: Roles Of Human Capital Accumulation In Economic Growth By Chari Boru, November, 2023

2.6.8. Increase in Life Expectancy

By focusing on health facilities and making nutritive food available to people, human capital
accumulation increases the life expectancy of the people as it enables them to live healthy,
long, and happy life.

According to Hartmann (2010), health represents the level of human capital in the economy.
Therefore, the life expectancy at birth is chosen as the variable in the regression model.

One important outcome of health status improvements is the raise of life expectancy, which
has consequences on education and investment/saving decisions. It makes investment in
education more attractive and at the same time it is an incentive to save more for retirement,
since individuals expect to live longer (Kalemli-Ozcan et al., 2000). Therefore an increase of
life expectancy should raise schooling qualifications and saving rates. An increase of life
expectancy has also effects on the demographic structure of the population. By reducing
infant mortality, a higher life expectancy will be reflected on a raise of the proportion of
working age population.

In a study of 65 low and middle-income countries, Subbarao and Raney (1995) calculated that
the proportion of girls with secondary education would have reduced the fertility rate from 5.3
to 3.9 children per women, as well as the infant mortality from 83 to 38 per 100,000 live
births.

In addition, Bongaarts (2010) found that education levels are positively associated with the
demand for and use of contraception, and negatively associated with fertility and desired
family size throughout Sub-Saharan Africa.

Children of mothers with five years of primary education are 40 percent more likely to live
beyond age 5 (Summers 1994).

A year of additional schooling for the mother is often associated with a 5 to 10 percent
reduction in her child's likelihood of dying in the first five years of life (Schultz 1999).

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 A Term Paper: Roles Of Human Capital Accumulation In Economic Growth By Chari Boru, November, 2023

2.6.9. Control in Population Growth

It is common to see that an illiterate family has a large family as compared to an educated
family. Therefore, expenditure on education through human capital accumulation helps in
educating people and spreading awareness among them regarding the need of controlling the
population growth rate.

Cresma et al (2014) expected population growth to be negative but found weak positive
coefficient in their results. This only confirms that population growth might be either positive
or negative.

The great population of the county is depended on the young age distribution because it has
very high fertility rate it means young people have more productive power .A young age
distribution is concern of macro level because its covered national wide but a high fertility
rate is concerned micro level which is concern the part of the nation. The main reason of the
high fertility rate is incomplete information, norms and pension. This reason is found in
developing countries because the poor people do not have developed of modern welfare
system, health care, and pension fund. They have many children and not have any child care
system. In both cases the family members have responsible. The result will be poor people
always poor (Ray, 1998).

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 A Term Paper: Roles Of Human Capital Accumulation In Economic Growth By Chari Boru, November, 2023

3. SUMMARY AND CONCLUSIONS

It is now consensual that health, along with education, is a determining factor of workers’
productivity and, consequently, of per capita income growth. Therefore, for a more complete
understanding of economic growth and the convergence processes, economic theory has
incorporated health as a component of human capital. With this paper our main scope was to
present an empirical application of the Solow-Swan neoclassical approach adapted to the
evolution of the human capital concept. This approach considers health dimension as an extra
input – and so it is known as “the augmented Solow Swan model” – on the production
function and highlights its impact on the level of output.

In this perspective, health improvements lead to higher human capital accumulation, higher
productivity and so to a higher economic growth. On the other hand, better education
contributes to improve health conditions. In what concerns economic growth, as countries
improve their economic performance they have the capacity to invest more on education and
health services. Having in mind the important challenges OECD countries have to face in the
near future, namely the ageing population and the burden of chronic diseases, with this paper
our aim was to reinforce the idea that human capital encompasses not only the education
dimension but also health factors. In this context, it is important to emphasize that health
improvements are crucial for a better economic performance. Health prevention must be seen
as an individual, organizational and police decision makers’ responsibility.

Therefore, it is important the implementation of educational policies that may influence

lifestyles and contribute to more conscious risk behavior. At the individual level education
plays a major role. At the organizational level, human resources management should privilege
labor environment and employees’ health wellbeing.

Hence, promoting job quality should be a priority of developed countries’ policy decision
makers and also of employers. This strategy would result in a healthier workforce, higher
productivity and better economic performance.

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 A Term Paper: Roles Of Human Capital Accumulation In Economic Growth By Chari Boru, November, 2023

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