Human Capital Development

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Human capital which represents “the knowledge, skills, competencies and attributes embodied in individuals that facilitate the creation of personal, social and economic well-being” (OECD) was first defined and measured by Sir William Petty (1690). He believed that labour was the ‘father of wealth’ and included national wealth during the measurement. After Petty, Adam Smith (1776) presented a clear analysis of human capital and mentioned it as part of general stock. Afterwards Shultz (1961) classified the formation of human capital as skills and knowledge that people acquire, and recognized the human capital as one of key elements for national economic growth.
Nowadays, the United Nation introduces the Human Development Index as a composite of life expectancy, education and income index to rank countries into four tiers of human development. It is obvious to see that people in higher human development countries receive higher income than those in lower human development countries by reviewing the data from World bank. The statistic from UNESCO also show that the country with higher literacy rate is the country with higher income rate.

Castello(2002) displayed that the Gini coefficient slightly changes within countries over time, even thought the reducing education inequality improves the life standard of population at the bottom end of income distribution. They found two plausible explanations: (1) the improvement in wages of those lower educated people may also cause the wage of higher educated people increase; (2) the return to schooling are increasing with the level of education. According to Laroche’s eight main aspects of human capital, human capital investments are not qualitatively homogeneous. Denison(1967) argued that...

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...ion, such as government policy. A positive role of government can bring extra benefit for its citizen and nation. For example, embracing globalization can converge the growth and increase both private and social returns effectively; Improving the government administration can reduce the corruption and other public sector problems; building infrastructure can raise the standard of living. These actions would finally increase the output per capital of the country.
In conclusion, human capital is definitely one of the key factors that can affect the wealth of countries. But it is not the only reason for the poverty of the country and cross-country inequality. There are so many work should be done in the study of human capital and economic growth in future. Just like what Lindahl (2009) said, “We know something about the former but very little about the latter issue.”
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