Human capital and economic growth
Topic: Human Capital: Education, Health and Demographic Dividend · NCERT: Class 11, Ch 4 "Human Capital Formation in India"
Meaning
Human capital raises economic growth, which is the increase in a country's real national income. It does this by raising labour productivity, stimulating innovation and building the ability to absorb new technology. Health also gives an uninterrupted supply of labour for a longer period. But NCERT calls the evidence "nebulous", or unclear, for three reasons:
- Causality runs both ways: higher income leads to more human capital, and more human capital leads to higher income.
- Developing countries are catching up with rich countries on human capital measures, but not on real per capita income.
- The usual measures, such as years of schooling and life expectancy, miss quality and true health status.
Example
In India, between 1951 and 2018-22, real per capita income rose from ₹7,651 to ₹94,054, infant mortality fell from 146 to 28, and literacy rose from 16.67% to 78%. NCERT's reading is that these sectors grew at the same time and probably reinforced each other, but cause and effect are hard to prove.
Don't confuse with
- Endogenous growth theory (Robert Lucas, 1988): this theory argues that human capital has spillovers that keep growth going. The Class 11 point is only that the evidence for a clear causal link is unclear.