Human Capital Impact On Growth

In his study of growth, Solow (1956) focused on 2 factor inputs, capital and labour. This provided a starting point in understanding growth as elucidated in Kaldol’s stylised facts (1961) which provided a framework to guide academics in their study of growth. However capital accumulation in itself fall short in explaining the difference in growth rates among nations. Economists Robert E Lucas (1988); Romer (1990) in his study of growth points out the limitations of models as developed by Solow in the 1950’s as they ignores factors such as Human capital. He argues that human capital is in itself a factor input into the production function. In doing so growth was no longer exogenously determined but endogenous to the growth model. Through this

There are a number of proposition on the mechanism by which human capital influences growth. As stated in the previous paragraph, human capital can itself be treated as a factor input in the production function Miller and Upadhyay (2000); Mincer (1984); Human capital through positive externalities can impact on growth. Academics and scientists engage in research which leads to innovation. This innovation in turn can increase the productivity of labour, capital or both. Therefore human capital can drive technological progress through increasing the productivity of other factor inputs (Jones, 1998). However some argue that this relationship is not necessarily unidirectional. An argument can be made for growth causing human capital development as a result of growth in incomes of households, part of which is invested in education of children or by firms having more resources to provide on job training which improves the skills and competencies of the individuals. Others like (Al-Yousif, 2008) found in their study using empirical data in gulf countries that the relationship to be

The nature of public expenditure is important given that it determines the kind of impact it will have on the economy (Chen, 2006). It is broadly classified as either consumptive or productive Barro (1990); recurrent or development expenditure. Investment in sectors such as infrastructure, energy, health and education has a positive impact on the growth while consumptive expenditures should be optimised as they do not yield a net positive impact on the economic growth of a country (Agu, Okwo, Ugwunta, & Idike,