Edited by Pauline Dixon, Steve Humble and Chris Counihan
Chapter 4: The role of human capital in economic development
‘Truly, the most distinctive feature of our economic system is the growth in human capital.’ T.W. Schultz (1961). Why are some nations rich and some nations poor? To provide answers to this question is the ‘Holy Grail’ of research in economics. From Adam Smith’s Wealth of Nations (1776) to Daron Acemoglu and James Robinson’s Why Nations Fail (2012), the objective has been to unlock the secrets of economic growth and material progress. Modern developments in economic theory have increasingly emphasised the role of human capital accumulation (improvements in the quality of human resources) as a key ‘stylised fact’ and important determinant of any nation’s long-term economic performance (Jones and Romer, 2010). Nobel Laureate Gary Becker (2002, p. 3) has even labelled the modern era the ‘age of human capital’ and argues that ‘human capital is by far the most important form of capital in modern economies’. In this chapter we will review some of the important theoretical, empirical and policy issues relating to the role of human capital in questions relating to the causes and consequences of modern economic growth and economic development.
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