The Impact of Human Capital and Economic Growth Evidence from Developing Countries

The Impact of Human Capital and Economic Growth Evidence from Developing Countries

Introduction

            Developing countries consistently employ all available measures to ensure that they sustain positive economic growth and development. Many factors are incorporated in explaining the GDP of a given country(Chen, Quan & Liu, 2013). With economists arguing that the development of a country should not be evaluated by the GDP, more insight should be sought in to know the

role of aspects like human capital in developments. Experts consequently came up with an argument that human capital should be used as a factor, precisely as a regressor in determining the GDP of a country. Despite a positive correlation between the level of knowledge gained particularly in schools and output growth, it is advised that this should not be interpreted as positive growth being caused by human capital. Interestingly, these arguments about human capital contributing to economic growth appear to be far from over with production factor clearly being affected by enrolment ratio.With this aspect unclear, a research is important to determine the role of human capital in economic growth. The question of whether human capital contributes much to economic growth should be studied to get a clear answer.

Literature review

Teaching and equipping individuals with knowledge on certain tasks is not necessarily the only aspect that leads to sharp economic growth. The environment should be made conducive and also encouragement to work together for a common goal (HECKMAN, J. 2005). Due to complication of empirical works, use of combined HR practise is viewed as more fruitful and reflecting the real situation on the ground (Li, Wang, Westlund & Liu, 2014). Aspects like the resource-based view advocates for success being realised in an organisation as a result of combining resources together and other factors of production. This bring s into perspective the issue of competitive advantage which is in built and arguably hard to imitate or copy as traditionally thought. The aspect of human capital, being interpreted as invisible or intangible asset greatly depends on how it is utilised by the HR(Baster, 2010).human capital is considered as a major tool in terms of competitive advantage since it is not an aspect or a mechanism that can be easily sought by competitors in the market (Young, A. 2003). The human capital success is hence best realised when the best is sourced to carry out a defined task(Zhan, Duan & Zeng, 2015). This issues suggests that it is almost true to conclude that the biggest or the most crucial assets of an organisation are the professional skills offered by the human capital.

Research methodology

The study will try to examine if the level of enrolment in education systems affect the outcome of economy at the end. This precisely means that the study will examine the enrolment pattern in education systems, schools and colleges precisely. This is due to the fact the human capital, which in this context is the human knowledge to carry out some functions or their knowledge on certain matters is achieved as a result of enrolment in learning institutions(Smith, 2010). Evaluation of if the higher the level of human capital or enrolment to learning institutions causes the higher the level of Gross Domestic Product, will be the main purpose. This means that quantitative analysis is the most appropriate in this study where secondary data will be mainly used. The analysis of data will be done using Microsoft excel 2016 to examine if there is any relationship between human capital and GDP. The effect of human capital in economic growth in Chinashall be the main purpose of the study. (Chinese Statistical Bureau, 2009). The data will be got from China’s Monetary department showing the GDP in different years and level of human capital. The data got will be the one generated using Barrow-lee approach for thirty years from 1978 to 2008.

 

china’s human capital in economic development Column1 Column2 Column3
Year GDP human capital
1978-1983 9.82% 2.34%
1984-1989 9.72% 2.36%
1990-1995 9.89% 2.39%
1991-1996 9.92% 2.41%
1997-2002 9.98% 2.44%
2003-2008 10.06% 2.51%

 

The data above shows how the GDP in China grew over a period of thirty years. Change in human capital over time is also shown in the table. Since the data could not give a clear picture on whether human capital majorly contributes to the GDP, analysis of data was important. The independent t-test was carried out to determine if there was a statistical relationship between human capital and the GDP.This would show the relationship between GDP and human capital but would not show the level of correlation between these two factors. This would hence advocate for a Pearson’s correlation coefficient to be carried out to show the strength or weakness of the relationship.

 

Column1 Column2 Column3 Column4 Column5 Column6 Column7 Column8 Column9
SUMMARY OUTPUT              
Regression Statistics
Multiple R 0.90928249
R Square 0.82679465
Adjusted R Square 0.78349331
Standard Error 0.00055558
Observations 6
ANOVA
  df SS MS F Significance F
Regression 1 5.8937E-06 5.8937E-06 19.0939747 0.01197121
Residual 4 1.2347E-06 3.0867E-07
Total 5 7.1283E-06      
  Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 0.0562091 0.00979153 5.74058303 0.00456254 0.02902345 0.08339475 0.02902345 0.08339475
X Variable 1 1.77609277 0.40645968 4.36966529 0.01197121 0.64757977 2.90460578 0.64757977 2.90460578

 

From the above output, Pearson’s correlation coefficient R2 is shown to be 0.82679465. This means there is a relationship between the human capital and the GDP of China as per the data obtained. With the value being greater than 0.7, the relationship can be said to be very strong.

 

The graph shows that with slight increase in GDP, there is a slight increase in human capital. The results affirm that indeed there is a relationship between the GDP and the human capital. This can be interpreted to mean that if the higher the human capital, the higher the GDP. It should however be noted that human factor is not the only factor that influences GDP.  From the above results, the research question on whether the human capital greatly affects the GDP can be answered. We can conclude that human capital is a major factor in determining the GDP of a country(Castelló-Climent, 2010). However, it is not the single factor that contributes to GDP.

 

Limitations

            The study considers only one factor in determining what affects the GDP. This means that credit can be on a factor that was not necessarily the main cause of the witnessed growth in GDP(Pedrini, 2007)The study does not really proof that in a situation the level of human capital reduces, the GDP level will reduce.

Conclusion

            One can conclude that for nations to raise their GDP, they should invest more on human capital. This means enrolling more people in learning institutions which consequently may reflect on the performance of the GDP. However, in future more aspects should be examined in trying to evaluate what causes changes in GDP to avoid shallow findings.

Reference

Baster, N. (2010). Adjusting China’s GDP: a green accounting illustration. International Journal of Green Economics, 4(2), 197. http://dx.doi.org/10.1504/ijge.2010.035340.

Castelló-Climent, A. (2010). Channels through Which Human Capital Inequality Influences Economic Growth. Journal of Human Capital, 4(4), 394-450. http://dx.doi.org/10.1086/659338

Chen, Y., Quan, L., & Liu, Y. (2013). An empirical investigation on the temporal properties of China’s GDP. China Economic Review, 27, 69-81. http://dx.doi.org/10.1016/j.chieco.2013.07.007

Chinese Statistical Bureau, 2009, Chinese Statistical Yearbook

HECKMAN, J. (2005). China’s human capital investment. China Economic Review, 16(1), 50-70. http://dx.doi.org/10.1016/j.chieco.2004.06.012.

HECKMAN, J. (2005). China’s human capital investment. China Economic Review, 16(1), 50-70. http://dx.doi.org/10.1016/j.chieco.2004.06.012

Li, Y., Wang, X., Westlund, H., & Liu, Y. (2014). Physical Capital, Human Capital, and Social Capital: The Changing Roles in China’s Economic Growth. Growth and Change, 46(1), 133-149. http://dx.doi.org/10.1111/grow.12084.

Pedrini, M. (2007). Human capital convergences in intellectual capital and sustainability reports. Jnl of Intellectual Capital, 8(2), 346-366. http://dx.doi.org/10.1108/14691930710742880

Smith, E. (2010). Sector‐Specific Human Capital and the Distribution of Earnings. Journal of Human Capital, 4(1), 35-61. http://dx.doi.org/10.1086/655467

Zhan, J., Duan, H., & Zeng, M. (2015). Resource Dependence and Human Capital Investment in China. The China Quarterly, 221, 49-72. http://dx.doi.org/10.1017/s0305741014001556