Human Capital and Economic Development

Abstract

Health and education are both components of human capital and contributors to human welfare. One index of human welfare, which incorporates income, education and health, shows that Africa’s level of ‘human development’ is the lowest of any region in the world. In this paper we will frequently compare Africa with South Asia. While Africa’s level of human development is lower than that of South Asia, its per capita income is higher. Africa’s poor economic performance has been most marked in its growth rate which has been half that of South Asia. As Africa has found since 1980, slow economic growth severely limits the ability of governments and households to fund further investments in health and education. Low investments in human capital may impinge on already low growth rates of income. Such interrelations might be thought to imply a vicious circle of development, but this should not be overstated. Poor countries have considerable discretion over how much to invest in health and education. Since Independence, Africa has achieved a rapid growth of some aspects of human capital particularly in the expansion of education despite starting from a low level of income. The expansion of the human capital stock has not been matched by a commensurate rise in physical capital. The result has been low growth of incomes and low returns to the educational investment. This paper provides an overview of Africa’s achievements in the formation of human capital, and its impact on economic growth and welfare. Human capital, economic growth and welfare are closely interrelated. Section 2 provides an assessment of Africa’s human development in the context of other developing regions. Section 3 turns to the central issue of how to promote economic growth in Africa and the role of human capital in that process. Section 4 presents evidence on the linkages between education and health outcomes, while section 5 provides some concluding remarks.