Impact of Human Capital on Economic Growth

Human capital and economic growth are related to each other. Human capital influences economic growth and it can generate an economy through knowledge and abilities.

Meaning of Human Capital

Human capital refers to the stock of skill, ability, expertise, education, and knowledge in a nation at a point of time. We need investment in human capital to produce more human capital out of human resources.

Nations require adequate human capital who are educated and qualified as educators and other specialists. In other words, we need great human capital to create other human capital like doctors, engineers, professors, etc., which will later become a human asset and contribute to the economy of the country.

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Human Capital and Economic Growth

When we talk about economic growth, human capital is the main reason for the accelerated growth and expansion for many countries that provide investment in human capital. This gives the best advantages to these countries for providing the best situations for work and lifestyles.

A significant advantage in generating a stable environment for growth is that the nation has the expanded high-quality human capital in fields like health, science, management, education, and other fields. Here, the main components of human capital are definitely human beings, but presently, the principal component is a creative, educated, and enterprising person with a high level of professionalism.

Human capital in the economy manages the central portion of the national wealth. Hence, all researchers consider that human capital is the most important resource of the community, which is more powerful than nature or wealth. In most countries, human capital determines the rate of development, economic, technological, and scientific progress.

(i) Inventions, innovations, and technological improvement

1. Human capital leads to more innovations in the areas of production and other related activities.
2. Innovation leads to more growth.
3. Human capital also creates the ability to absorb new technologies.

(ii) Higher productivity of physical capital

1. Human capital increases labour productivity.
2. Trained workers will use the physical capital (like machines) more efficiently.

(iii) Raises production

1. The formation of human capital raises production levels and leads to economic growth by adding to the GDP.
2. Knowledgeable and skilled workers can make better use of resources at their disposal.

(iv) High rate of participation and equality

1. By improving the productive measures of the labour force, the formation of human capital increases excellent employment.
2. This leads to a high rate of participation in the labour force.
3. It reduces the gap between the poor and the rich.

(v) Improves the quality of life

1. Quality of life is indicated by income and health.
2. Income and health depend upon the level of education, skill formation, etc.
3. The formation of human capital increases these skills and improves the quality of life of the masses.
4. Better quality of population means more economic growth.

Short Questions

1) What is human capital formation?

Answer:

• Human capital formation refers to the process of adding to the stock of human capital over time.
• It is the process of acquiring and increasing the number of skilled and experienced people.
• It is essential for the development of an economy.

2) What is physical capital?

Answer:

Human development is based on the idea that education and health are integral parts of human beings only when people have it to apply their knowledge to derive maximum benefit.

3) What is human development?

Answer:

Human development is based on the idea that education and health are integral parts of human beings only when people have it to apply their knowledge to derive maximum benefit.

Multiple-Choice Questions:

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