Education, Human Capital, and Development: An Overview

Ampika Ananta and Ghassan BalikiMADE, Department of Economics, Warsaw University

Outline

• Introduction and Definitions • Dataset on Educational Attainment (Barro , et al, 2001)• Human Capital in Growth Models• Literature Review: Results• Perspective towards human capital on growth• Conclusions

Introduction and Definitions• “the acquired and useful abilities of all the inhabitants or members of the

society. The acquisition of such talents, by the maintenance of the acquirer during his education, study, or apprenticeship, always costs a real expense, which is a capital fixed and realized, as it were, in his person.” Adam Smith, The wealth of the nations

• Noble-prize winner Gary S. Becker who was the first to coin the term human capital says: “the most basic resource in a company is its employees” .

• Human capital is the accumulation of skill and knowledge imbedded in labor performance in order to produce economic value.

Should people be treated as assets or expenses?

Introduction and Definitions• Technological progress is invaluable when there are only few skilled

workers that know how to benefit from it.• Economic growth closely depends on the relation between new

knowledge and human capital, which is why large increases in education and training have accompanied major advances in technological knowledge in all countries that have achieved significant economic growth.

• Quantitatively, the early studies compared school enrollment ratios or literacy rates. The problem with that, is there is no adequate measure of aggregate stock of human capital available as an input of production.

International Data on Educational Attainment: Updates and

Implications

By Robert J. Barro and John-Wha LeeDepartment of Economics, University of Harvard, 2001

Introduction• The early Barro (1993) estimates compared Five-year intervals1960-1985

on adult population aged 25 and above till 1990, and also 15 and above which is best for developing countries.

• Improvements :– The use of gross enrollment ratios.– Changes of school duration.

Model:

Trend of Educational Attainment By Region

Tables adapted from Barro, et al, 2000.

Trends of Educational Attainment By Region

Tables adapted from Barro, et al, 2000.

Educational Attainment by Sex

Tables adapted from Barro, et al, 2000.

Completed Educational Attainment Dataset 1960-2000

• Although the educational progress of the developing part of the world has been increasing relatively for the last years, but it still is behind the developed and transitional regions.

• Also this trend is also obvious in the data of attainment with respect to gender ratios.

Schooling and Income Growth Models

• The Mincer Model Suggests that a change in the average level of schooling should be the key determinant of income growth.

• Mincerian Wage Equation:

Krueger, et al, JEL, 2001.

Human Capital in Growth Models

human capital:

physical capital:

and let,

Replacing the equations with the initial change we solve for the steady state:

Lucas Model, M. Doepke, Lecture Notes, 2003, UCLA

Human Capital in Growth Models• Human Capital as an endogenous growth• To see what happens to output at the steady state :

» In the steady state , when kt is constant, then » Output grows as much as human capital grows

The growth rate depends on the education time (1-u)

Lucas Model, M. Doepke, Lecture Notes, 2003, UCLA

Human Capital in Growth Models• Human capital is consistent with most of the evidence on the world

income distribution.• The previous model predicts convergence in rich countries, but relative

stagnation of poor ones• This is strongly dependent on the initial human capital stock.• Although for developing countries it shows pessimistic results still there is

a potential of growth, if invested in a higher share of resources into education. That will help convergence despite the initial human capital stock.

Lucas Model, M. Doepke, Lecture Notes, 2003, UCLA

Literature Review: Results• Most of the Literature is concerned on the importance of human capital ,

and its effect on technological progress , which is the main boost for growth.

• The causality links found between physical capital investment and investment in education support the idea that physical and human capital are relative complements. (Podrecca)

• Thus Human capital is treated more as a an investment in growth , rather as a cause of it.

• health and education are found to be important inputs in the aggregate production function, and important determinants of the possibility of low income countries to rapidly catch up with the developed world. (Sab)

• Also education has its social effects and health ones as well, and it is an effective investment in the overall productivity of the labor.

Graphical Interpretation

Brazilian Bolsa Escola Program• Means tested conditional cash transfer programs. (Bourgignon )• It aims to reduce current poverty and future poverty by providing small

targeted cash transfers to poor households, provided their children are enrolled in and in actual attendance at school.

• Among poor households almost 60% of children do not enroll in school• 40% of children between 10-15 years old are going to be enrolled in the

school as the model suggests, who weren’t enrolled without the implementation of the Program.

• The main goal is to concentrate on its impact on the occupational choice (or time allocation) decisions of children, and the effects on current poverty and inequality.

Brazilian Bolsa Escola Program

• Results:– Reduction in poverty incidence by just over one percentage point

only.– Better for measures more sensitive to the bottom of the distribution,

but the effect was never remarkable.– This suggests that the targeting of the Brazilian Bolsa Escola program

is adequate, but that poverty reduction through this instrument, although effective, is not magical. Governments may be transferring cash in an intelligent and efficient way, but they still need to transfer more substantial amounts, if they hope to make a dent in the country’s high levels of poverty.

Literature Review: Results

• Thus we can conclude from the literature that Human Capital through Education has three important outcomes on growth:

1) More skilled and productive workers, which implies and increase in output of goods and services

2) Facilitation the absorption of advanced technologies.3) Social outcomes (Health, child fertility, distribution of income, etc…).

Our perspectives• What we have concluded from the results of the literature.• The need for the Increase in schooling and educational attainment

(tertiary education) in developing countries• How could the north (developed) help develop through its higher

educational programs, the south’s (developing) development.• The case of Africa:

– As reports show that the life expectancy in some African is around 45 years.– The importance of health education and social awareness are far important than

schooling.– AIDS ; fatal epidemics and there effect on growth and effectiveness of labor

Education and Its Implications• Tertiary Education is the key determinant of growth?• Although education as explained in the previous growth model, takes

away from the productivity of the labor, since the are spending their time (measured in years) in school rather in work.

• But the importance of tertiary education is growing rapidly, since all new technological advancements, require specific knowledge of the subjects concerned, whether it is the industrial field, or medical one.

• important question arises:

How would the developing countries catch up with this expanding base of knowledge?

Education and its implications• Developing countries do not lack good universities, but they are only

targeted mostly for the elites, or the upper class in society!• Investment in research is also poor, the lack of funds and grants that are

targeted to develop research in poor areas of the world.• Therefore , we can think about, if the developing world needs to catch up

with the prosperity of human capital in the developed world ( as shown in the previous model) it cannot only depend on the primary and secondary levels of education.

• Another ignored idea is that the immigration process and the brain drain! Although scholarships will be offered to students form the developing world to continue their graduate studies abroad. In this process first, still it is very selective. Second, one of its dangerous consequences; the investment in those students (future labor) is in the host countries. Thus the effected growth is not guest-country beneficial.

ConclusionsHuman Capital generally has a positive effect on growth. Although studies has not shown enough evidence for that.Still introducing human capital as an endogenous variable in growth is relatively effectiveHuman capital in developing countries has to grow very fast in order to catch up with the developed countries. Although all the means used are vaguely inconsistent till this time!Investments in research development and educational sectors in developing world would be an important asset in human capital attainment and thus economic growth

Thank you for your Attention!