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Conclusion: Human Capital and Economic Development

Written by: African Development Bank

Article Overview: Africa has made large strides in raising literacy and school enrolments and improving health. However, in the case of both education and health these gains are lower than those in other developing countries.

Conclusion: Human Capital and Economic Development

Africa has made large strides in raising literacy and school enrolments and improving health.
However, in the case of both education and health these gains are lower than those in other developing
countries. The percentage of the population over 15 which had completed primary school in 1990 was
25 per cent in Africa as compared with 32 per cent in South Asia. At the secondary level the gap is
larger with only 4 per cent of the population over 15 having completed secondary school. The comparable
figure for South Asia is 10 per cent, for East Asia it is 50 per cent. Life expectancy on the continent is
now 8 years below that in South Asia. Within the overall average for Africa there is great diversity. The
health and education of people in some African countries is far lower than would be expected from their
income. The nature and extent of this diversity is examined.
Human capital is only one factor in accounting for differences in growth rates across countries.
While low starting levels of human capital may have hindered Africa’s economic growth, its poor
performance cannot be attributed to a lack of subsequent investment in human capital. A more important
proximate cause is the low level of investment in physical capital. Low rates of investment in physical
capital have implications for the rates of return on human capital, particularly education. The conventional
wisdom that the rates of return to education are very high is shown not to have held in the context of
many African labour markets in the 1980s and 1990s. If human and physical capital are complements
then the policy problem is enabling them both to grow rapidly. Returns to human capital investment
depend on the success of policies in promoting the growth of physical capital. There is evidence from
micro studies that the income returns to education reflect the effects of education in raising productivity.
These effects have been observed for both industry and agriculture. For industry it is the secondary
level which is important while for agriculture it is primary education. Less research has been done on the
productivity effects of health and nutrition in Africa. The limited evidence is consistent with conclusions
from other developing countries that these effects may be substantial. The role of human capital in
Africa’s economic development is complex. Inadequate investment in education and health are clearly
not the only cause of Africa’s economic difficulties. However, the poor health and education of Africa’s
workers is one factor explaining her low income. Government investment in the social sectors is likely
to be economically productive and indeed is likely to bring more direct benefits to the people than many
other forms of government expenditure.

Government investment in both education and health may be particularly important as there are
indirect benefits of such investments which individuals may not allow for in their investment decisions.
Social rates of return may substantially exceed private rates.
Child illness and malnutrition inhibit attendance and performance in school. There are long term
effects of educating one generation on the welfare of their future children. Africa’s earlier investments in
schooling mean that many more African parents are educated. This is lowering child mortality, reducing
the number of births and helping to maintain school enrolments despite falling incomes. The long-term
intergenerational effects of health and education are an important reason for promoting social sector
investments despite tight current fiscal constraints. To this should be added the irreversible effects of
failing to make such investments. Once a generation of children are exposed to life without adequate
health care, nutrition or schooling, there is little that can be done during their adulthood to reverse the
damage. Perhaps the main conclusion of this paper is paradoxical. Despite the many and complex
interlinkages between human capital and economic development, the policy debate might benefit from
a greater delinking of the two. The optimists are wrong to believe that investing in human capital will be
sufficient for growth. The pessimists are equally wrong to argue that investments in health and education
must wait for growth.

Human Capital and Economic Development
Simon Appleton and Francis Teal

Related Articles
  Introduction: Human Capital and Economic Development
  Human and Physical Capital: The Effects of Human Capital on Economic Development
  Preface: HUMAN CAPITAL FORMATION AND FOREIGN DIRECT INVESTMENT IN DEVELOPING COUNTRIES
  HUMAN RESOURCE DEVELOPMENT AND ATTRACTING INWARD FDI
  Expenditure Composition and Growth

Article Tags: 1980s, 8 years, african countries, african labour, comparable figure, conventional wisdom, developing countries, east asia, economic growth, gap, human capital investment, improving health, labour markets, life expectancy, literacy, poor performance, proximate cause, secondary school, south asia, strides



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