The Importance of Human Capital for Economic Growth

             This post is a summary of one report and one abstract. The first with the title above was published https://www.researchgate.net/profile/Florian_Schuett/publication/241076795_The_Importance_of_Human_Capital_for_Economic_Growth/links/554d19e10cf21ed2135f5d97/The-Importance-of-Human-Capital-for-Economic-Growth.pdf?origin=publication_detail. The second was published at  https://link.springer.com/article/10.1007/s10887-017-9141-3

               Recent theoretical contributions to the growth literature emphasize the role of human capital in the process of economic growth. The idea that human capital plays an important role in explaining income differences has been present in economists' thinking for a long time. By some accounts, it can even be traced to the work of Adam Smith and Alfred Marshall, although it was not until the middle of the 20th century that was developed a theory of human capital. This theory, according to which a person's level of education and experiences determine his or her income, was originally envisage in a microeconmic context, but has subsenquently been applied to macroeconomics. It seems appropriate to discuss some terminological aspects before proceeding. Human capital is a complex theoretical concept that is not defined in a uniform manner. In its most general form, it refers to the resources in people. It has been defined bt the OECD as "the knowledge skills, competences and other attributes embodied in individuals that are relevant to economic activity. This is a broad definition because it is not restricted to education but encompasses all investments in human which are made to improve their skills. Human capital matters for growth. The channels through which it may affect output growth include direct productivity effects and more indirect effects due to externalities, facilitated technological adoption, or enhanced productivity of R&D. The last section has made an attempt to evaluate the empirical literature and identify the most plausible results it has generated, On balance, the evidence seems to indicate that educational expansion does contribute to output growth, and that the estimated magnitude of the social returns to schooling is consistent with the evidence on private returns from labor economics. There also appear to be grounds for thinking that human capital has a substantial impact on technological catch-up, possibly through imrpoving a country's capacity to adopt new technologies. Finally, for all the discussion about education's role in growth, it should not go unmentioned that investment in education does not need to be justified by economic benefits. It is well-known that education is associated with a number of wider benefits to individuals and society. To give some examples, better educated people tend to be healthier and show more active asocial and political participation. education may also reduce crime, and produce more efficient consumers.Nonetheless, understanding the economic benefits of education, and human capital in general, is undoubtedly of significance, not least because human capital accumulation is one area in which government policy can truly make a difference. In order to be more useful to policy makers, economic research will have to go beyond the simple question of whether human capital matters for growth, and address issues as how to efficiently allocate resources and improve the quality of schooling. 

             The effect of human capital on growth involves multiple channels. On the one hand, an increase in human capital directly affects economic growth by enhancing labor productivity in production. On the other hand, human capital is an important input into R&D and therefore increases labor productivity indirectly by accelerating technological change. In addition, different types of human capital such as basic and higher education or training-on-the-job might play different roles in both production and innovation activities. We merge individual data on valuable patents granted in Prussia in the late nineteenth-century with county-level data on literacy, craftsmanship, secondary schooling, and income tax revenues to explore the complex relationship between various types of human capital, innovation, and income. We find that the Second Industrial Revolution can be seen as a transition period when it comes to the role of human capital. As in the preceding First Industrial Revolution, “useful knowledge” embodied in master craftsmen was related to innovation, especially of independent inventors. As in the subsequent twentieth century, the quality of basic education was associated with both workers’ productivity and firms’ R&D processes. In a final step, we show that literacy had also a negative effect on fertility which increased with innovation. In general, our findings support the notion that the accumulation of basic human capital was crucial for the transition to modern economic growth.