Impact of Human being Capital on Economic Development

How human capital plays a part in financial development?


The education of a country plays a fundamental role in the development and financial growth since its origins in the medical and intellectual revolution of the sixteenth and seventeenth hundreds of years, and then your age group of enlightenment which corresponds to the eighteenth hundred years where the idea of progress was sent, this philosophy comes from the last hundred years. Real human capital has been a concern that has caused controversy over its role in the Industrial Revolution.

Most economists and economic historians have looked into how the individuals capital has a significant impact on economical performance in a country. The main reason is that folks spend money on education, acquire skills and expertise. Which means that everything that they have learned throughout their life is an investment in individual capital which in turn seek an economic return. Education provides a high-income to the people and for that reason to the market of their country.

It is vital to investigate the contribution of human capital throughout the market. In the development of the essay we will make clear two theories that are analyzed when analyzing education varying, these theories will be the human being capital theory and signaling theory.

The question that comes to the mind is whether a higher growth of standard education creates high economic development or vice versa? According to the theory and empirical facts demonstrates education is leading a high level of economical growth, ie, that there is causality.

There are different methods to private and sociable dividends to education but most empirical studies derive from private returns. The problems that happen in the dimension of education on financial expansion of a country are omitted factors and reverse causality.

Intellectual Roots of Modern Economic Growth

In the sixteenth hundred years the Baconian program diffused knowledge and natural philosophy was put on solve issues with technology and get economical development, in this century scientific advances were vital for industrialization. While in the seventeenth century started the age of enlightenment where establishments encouraged and marketed knowledge and technical advancement, this technique minus the Industrial Revolution wouldn't normally have had the same impact.

After the the introduction of the countries in the Industrial Trend some countries became members of the club convergence. Mokyr (2005) argues that the age of enlightenment produced a high level of scientific progress.

A great and interesting question that people discuss always is excatly why not many people are developed? Relating to history, economic expansion has been reliant on the diffusion of knowledge. Since the Second World Battle is a occurrence the development of education in virtually all countries. David Landes says that "The center of any process of industrialization and economical development is the intellectual. " It is important to indicate that the technology copy can be considered as an educational process.

Learning certainly is determined by the top priority to get to education. Therefore, open public policy should addresses strategies to enhance the education system in a country. When laws are proposed to develop an excellent educational system we seek the effect of education on economic expansion or vice versa? According to the theory, economic expansion is a cause of educational progress, but it has also happened individually.

Effects of individuals capital throughout the market and its marriage with other variables

We ask ourselves whether the growth of quality education contributes to the development and growth of a country or region? Bjorkland A. and Lindahl M. (2005) claim that the contribution of education to financial development is overestimated and that social returns are not as great as the average person results (per capita), while some say that the individual returns are bigger than social. The main reason is that the contribution of education to the creation of the culture is lower than the effects of specific income or per capita.

There are contradictory quarrels about the role of individuals capital on the development and economical progress, for example, that neither got a large impact nor was the cause of the Industrial Revolution. Baten and Zanden J. L. argue that countries with low individual capital possessed no influence on the Industrial Trend while countries with better conditions come to the level of Great Britain and other countries surpassed it. Before the seventeenth century, the forming of human capital possessed a positive impact. The great divergence occurred in the time 1800-1913 where countries with high levels of human capital participated in the Industrial Revolution while less developed countries possessed no impact.

Traditional research shows that individual capital is immediately related to specific cash flow and aggregate monetary progress rate of countries. The problem arises when the amount of education is a premature measure of real human capital, in particular when the level of human being capital between countries is likened.

Many of the empirical data on individual capital until 1990 was based on the amount of education such as the number of years of education. You will discover discrepancies when data can be used for comparisons between countries, it is more reliable to utilize data of locations within the country (Bjorklund A. Lindahl and M, 2005). The issues of such studies are data restrictions which make it difficult to acquire comparable results across countries.

For example if someone might feel that a year of education in Ecuador is as productive as one year in Sweden. The individual in mention would have to assume that the quality of the training system is equivalent in both countries. This causes an issue in the estimation of the allocation of education on monetary development because information is omitted, which generates biased and inconsistent quotes. This may have a poor impact to the educational policies of the countries.

For the above mentioned reasons, it's important to incorporate the grade of education in order to have significantly more reliable results using standardized data of mathematics and science somewhat than years of schooling data. This variable we can consider aspects that are omitted in the measures of amount of education that tend to be used as proxy for real human capital. Which means that it is better to work with quality signals that quantity signals of individuals capital.

According to research workers, when education is assessed by quality indications that reflect the abilities and abilities purchased in the work, is exactly what really matters when the monetary development and development is examined.

In the field of politics, this makes that educational policies be produced, concentrating on increasing educational attainment and coaching skills and technological knowledge. In addition to, the value to recognize the educational reforms that should be undertaken in order to be effective, so that will lead to a widespread economic growth.

Besides the issues of options of skill, underestimation of income and consumption and heterogeneity of educational systems, the main topic of discussion among research workers is the addition of unobservable factors such as innate capacity in the income equation. Therefore, in order to determine the income of people is necessary to learn their output levels, and believe that these count only on the years of training and experience, but it isn't fully changed to the truth.

There is causality between education and financial growth? Corresponding to studies of evaluations among countries, they have its limitation in the repository and we can not know with certainty whether more education leads to a rise of the GDP or a higher GDP causes an increase in the demand of education in the world. A high degree of education increases development and for that reason to a higher economic development. .

One of the primary factors that causes a rise in the children's education is the education of parents. Subsequently, there's a romantic relationship between education and other parameters such as health, life expectancy, crime and political participation.

Bjorklund and Lindahl (2005) conclude that there are no external effects that have a great impact on education: on the other hands, they argue that there is empirical facts demonstrating that education contributes to a noticable difference on health, escalates the life expectancy of people, has greater political participation, reduces the offense rate and this children of educated people are more productive. These writers argue that education might not exactly be a adjustable which has a great impact on the monetary development of a country and that the measure of GDP is too small to capture the full effects. Additionally, when studying modifications among countries and areas is difficult to capture all the results.

Is education an indicator?

Human Capital Theory and Signaling Theory

To know whether education is a sign, we should find out about the human being capital and signaling theories. These theories describe the individuals capital and inequality of pay acquired by people. With Man Capital Theory wages through education and experience are identified. While signaling theory presents that folks are informed to provide impulses to employers corresponding with their skills but it isn't considered the training as a mechanism that creates stock of individuals capital. The implications of these two ideas is the productivity of people and the sociable costs of education. Most writers agree that education generates increases in the successful capacity of people and also provide their information to enterprisers through signals pertaining to to education

Wage dissimilarities are also differences in productivity? There's a causal result that can be used to distinguish between a low and a higher educated workforce, Morette (2004).

Entrepreneurs count on indexes and individual signals to determine the marginal efficiency of the individual and so assign them an income that matches the anticipations from that information. According to the notion of signaling, individuals can create their chances of pay and job through education, due to the fact that they acquire signs that produce them more appealing in the labor market. From the idea of view of individuals, since they perceive the possibility to increase profits through the information of their own capabilities, they will make an effort to raise the resources earmarked to acquire these details, Stiglitz (1975).

Human capital ideas have been developed to give an explanation of the forming of wages. Despite the limitations that remain in the repository, the continuous work to include relevant factors in human being capital investigations has allowed to confirm the original hypothesis of human capital of Becker and Mincer. The assumptions of the theory are questioned when Spence proposes that education is utilized by individuals as indicators offering information about the skills of individuals.

Both theories maintain that the consequences that education is wearing cash flow of life circuit are positive. While individual capital theory argues that income determinants are education and experience that permit to the given individual to acquire the skills to do a job, the signaling hypothesis of creators like Arrow, Spence and Stiglitz raises education as an activity providing " brands " to employees to present these brands to employers in the choice process, but not a process that raise the real productivity of people. Within this difference in the implications of teaching on individual efficiency of each of both theories we find the interest in knowing about the idea that explains the formation of pay in labor market segments. In the event that the signaling hypothesis is confirm, individuals would go to educate themselves for the only real reason for obtaining alerts to provide to employers, in cases like this they are not expanding their skills to become more productive, plus they do not generate stock of human being capital. In contrast, the predictions of the idea of individual capital imply education continues to be profitable for folks and for society probably.

Los estudios tratan de discriminar entre las dos teoras y as conocer la relevancia de las polticas educativas sobre la economa, aunque descartar cualquiera de las dos limita la respuesta de conocer los elementos que determinan los salarios. Se han desarrollado en los єltimos a±os modelos que muestran que la educacin sigue resultando una inversin rentable para los individuos y para la sociedad y, a la vez, que los empleadores la toman como una informacin disponible acerca de la habilidad de los individuos.

Studies attempting to discriminate between the two theories and know the value of education guidelines on the market, but discard the two theories, restricts the response to know the elements that determine salary. It's been developed in recent years models displaying that education is showing a profitable investment for individuals and for contemporary society and, at the same time, that employers take it as information available about the power of individuals.

Social and private results to education

The social go back to education is broader and has its effect on the public budget. Finally, different authors have used different methods to the research of the results to education through private and cultural rates, average or marginal rates, depending on purpose of the study.

According to Psacharopoulos G. (1985) the earnings are higher when most important education in a country is analyzed and private rates increase following the extra level. He argues that private results exceed social results because general population education is subsidized by the federal government.

Returns to private education include all the benefits and costs incurred by an individual, while the social discount rate includes reinforced by institutions, as well as the fees associated with education. Studies tend to focus on the examination of private comes back to education, no matter social profitability. Very few investigations have been done about the impact that has the public financing in the decision of individuals or the communal impact of subsidies on education.

The dividends to education are overestimated when based on the income of personnel in all industries. There is overinvestment in every degrees of education.

Problems in calculating education

Two problems are presented. When data of education and income at aggregate level is used, the estimations are bigger due to external effects while when specific or per capita income quotes are being used, the estimations are smaller. For these reasons, there can be found a existence of Opposite Causality, ie that wealthy countries invest seriously in education and has compulsory education while in other countries, individuals choose to educate themselves. The other problem is the omission of variables when making estimations of the effect of education on economic growth. In such cases high estimates for the omitted variables and opposite causality are produced.

When measuring the impact of education on economic growth is completely different when the level of GDP or the GDP expansion is used, this latter variable actions the expected effect of growth on the level of education. Because problems arise when considering data from countries Krueger and Lindahl (2001) recommend using data between parts of a country.

In addition to education, there are other factors that impact education and monetary growth of a country, including the degree of capital-intensive and technology development.


The Scientific Revolution and the Age of Enlightenment possessed a great importance in the process of industrialization due to technological improvement and knowledge and so on economic progress of countries. Within the nineteenth century, there is the Great Divergence where countries with advanced of education possessed a great impact on the Industrial Trend while countries with low individual capital had no result.

Cuando se realizan las mediciones de la educacin y su efecto en el crecimiento de la economa se presentan dos problemas de estimacin que ha sido la omisin de factors y el change causality. Hay que utilizar datos de buena calidad y todas las variables necesarias para que sea una estimacin consistente. Sera recomendable realizar el anlisis en bottom a un mismo pas porque si se realizan comparaciones entre pases los datos tienen sus limitaciones.

When measurements of education and its own effect on the development of the current economic climate are performed, we find two estimation problems that will be the omission of parameters and change causality. It's important to use good quality data and also the most crucial variables in order to have regular estimators. It is strongly recommended that the analysis is based in the country because if evaluations are created among countries, data have a whole lot of restrictions.

It holds true that a higher level of education generates high economic development, but addititionally there is evidence that progress occurs independently.

If the populace reaches a high achievement in the training level, the efficiency throughout the market will improve, achieving a high progress economy. Income differentials reflect a greater fruitful value of individuals capital which is a component adding to national production. Another influence on schooling because of this of good health favorably influences education. Similar results which would be obtained with increased productivity and expansion.

Education comes with an impact with the reduced growing in the population, meaning that a lot of the populace reduces birth rates. The birth amount of children influences the physical capacity to work with women and their output. This is very approximate to the effect of the health variable. Education does not have a large effect on the agricultural sector because technology affects this sector.

Education impacts the labor market since it makes more people involved, improve the quantity of trained people and expand at a high rate of labor force participation.

When an education policy aimed at increasing the amount of income syndication is implemented should think about the groups that will be affected, then the results may be different with regards to the treatment group and the influenced group.

For developing economies is difficult to give an indication of the impact of education on output and growth but will be even more difficult in low-income countries. Given the inefficient and non-transparent politics and economic systems of several of these countries the results to private education are met through non-productive activities. Which means that in order to boost the relevance of education to economical growth is necessary to attempt a restructuring of the politics and economic framework.


Baten J. & Zanden J. L. "Book Development and the Onset of Modern Economic Growth", Barcelona.

Bjorklund A & Lindahl M. (2005), "Education and Economic Developmrent. Exactly what does empirical show about causal associations?". Establishment for Sociable Research

Easterlin R. (1981), " Why Isnґt depends upon Development?". Journal of Economic History, Vol. 41, No. 1, pp. 1-19.

Mokyr J. (2005), "The Intellectual Origins of Modern Economic Growth". Journal of Economic History, Vol. 65, No. 2.

Psacharopoulos G. (1985), " Results to Education: AN ADDITIONAL International Update and Implications". Journal of RECRUITING, Vol. 20, No. 4.

Sianesi B y Van Reenen (2003), " The Returns to Education: Macroeconomics". Journal of Economic Research, Vol. 17, No. 2.

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