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Human and Physical Capital: The Effects of Human Capital on Economic Development



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References: Human Capital and Economic Development - By African Development Bank

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Human capital is a broad concept which identifies human characteristics which can be acquired
and which increase income. It is commonly taken to include peoples’ knowledge and skills, acquired
partly through education, but can also include their strength and vitality, which are dependent on
their health and nutrition. Human capital theory focuses on health and education as inputs to
economic production. This is in contrast to the concept of human development which views
health and education as intrinsically valuable outcomes to be placed alongside economic production
as measures of human welfare. In understanding the role of human capital as an input into
development it is necessary to consider the possible links between human capital, other forms of capital,
income and growth. While it is true for every country, for which there is data, that more educated
people earn more than less educated ones it does not follow that there is a simple relationship between
investing in people and countries becoming richer. Human and certain forms of physical capital may be
complementary. The problem in investing is to match skills with machines. It is not a question of either
investing in people or investing in machines, both are necessary. Even more important is the issue of
how much to invest in alternative forms of capital equipment and skilled labour. The answer to that
question is unlikely to be the same for all countries or to remain unchanged over time.

Human Capital and Economic Development
Simon Appleton and Francis Teal


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References: Human Capital and Economic Development - By African Development Bank

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About the Author: African Development Bank

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The African Development Bank is the premier financial development institution of Africa, dedicated to combating poverty and improving the lives of people of the continent and engaged in the task of mobilizing resources towards the economic and social progress of its Regional Member Countries.The Bank’s s mission is to promote economic and social development through loans, equity investments, and technical assistance. The ADB is a multilateral development bank whose shareholders include 53 African countries and 24 non-African countries from the Americas, Asia, and Europe. It was established in 1964, with its headquarters in Abidjan, Côte d’Ivoire, and officially began operations in 1967.
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