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Investment In Human Capital Through Education Toward Development


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People are the main wealth of the nations referring to their outputs, capacity and productivity. From that since people always invest in themselves which can expand their opportunities in all aspects of their lives. Thus, the present nation construction depend on enhance people and organizations of human being activities. In developed countries development means industrialization and that needs skills of workforce. That could obtain from any kind of education, training to work with the machines or with the high technologies. Many ways of human education toward development for example the fundamental education, on-job-training, in culture groups, self development by reading, learning from others taking courses outside the former education for instance courses in dealing with others, communication skills or any kind of knowledge that add more value to the person himself.

If the third world people want to be more productive, less poverty, and less unemployment, more richer. If they want more opportunities to make their community improved or raising the life equality. That is providing the demand of investment in human capital. In these papers will focus on the human capital development through education by increase the investment in education and the discussion will be about the education formations, rights, and role to development. Then will define the human capital and how to measure it stocks, the demand of investment in human capital and then will illustrate the ways to invest in it.


Referring to UNESCO the international community agreed that education is right for everyone and it's fundamental, essential toward all other human rights for example freedom and empowerment. They agree that education give the human the ability to affective participation in his community, society and the whole world. The right of education was conceived from the beginning as having a qualitative as well as a quantitative aspect. The time of learn is a whole life time and it cover all activities in human life since childhood to older age to obtain the world knowledge in other words education (knowledge) has the continuum and coextensive with world and life and that is essential for adopting the requirement of labour and for mastery of timeframe changing. (UNESCO, 1949) approved that the fundamental education should contain the need of each community and to resolve its problems that includes:

-basic communication tools for instance reading, writing, and calculation

-employment skills (agriculture, husbandry, commercial skills, building, and any other simple technical that important for economic development

-Domestic abilities (care of sick and children).

-understanding of human environment (economic, social, organization, low... etc).

-the development of qualities to fit man to live in current world

Education have so many formation starting from family learning skills for their children cross by the fundamental education which is the formal education that includes primary, secondary, post-secondary education, higher education universities and colleges, literacy and the training programmes for general employment or the training programmes for specific jobs or objectives, in-job-training, courses, and many other kinds of it that any human can benefit from it to enhance his or her skills, knowledge and productivities. Ideal example of the form of education that illustrates the role of education is technical and vocational education (TVE) for live long which is important transition from school to work place. In fact TVE give schools the role to provide essential qualification for more specific training. Furthermore it could develop the person in his culture aspects for example economic aspect and give him the ability to be responsible for his or her own knowledge. This system should coordinate with other educational sector which the biggest challenge that system faced. This approach encourages the person to use his head and hands for completion to economic and industrial development. In addition education has a role among the force at work in modern society. (World Bank, world development report 1998-1999) that "Education is the key to creating, adopting and spreading knowledge". So, always educated person is greater than uneducated one. The contribution of education can be estimated by measuring the length of schooling, amount of learning, attendances in schools, and the type of curriculum but is it important for development? The real important thing is the amount of benefit that society could obtain from the length or the type of curriculums to choose the appropriate type of investment in education. It could be investment in schooling or in job training for example TVE education to enhance the productivity of each person. The efficient measure of the return of education was by (Fleisher and Wang, 2004) look at the productivities of education in work place when they produce outcomes. That was a production-based return to education rather than any type of measuring which is widely used. Education makes the person more productive, useful and creative in an economic sense and more contributed to the national economy that is mean raising the human quality. It is basic objective of development. It is also fundamental for the nation of enlarge human capital to take up modern high technology and essential component toward development. In the third world education can seen as prime mechanism for economic growth. It can enhance the quality of population by learn them the skills to use the available resources in adequate way. On the other hand the higher, modern education the nation obtained the better influence to the health. Also the basic skills of health are gaining from the schools. As a result we explore that the higher spending from individual or government the higher productivity and incomes to the development of the nations.

Human capitals

Organization for economic co-operation and development (OECD) report which was a response of some Ministers of education define the human capital as the" knowledge, skills, competences and other attributes embodied in individuals that are relevant to economic activity". It can also define as the degree of ability of human to use the skills to productive. Another definition of human capital is the benefit through economic activity. So the abroad definition is the assets that support the outputs, improvement and employment. (Schultz W, 1971.) See the human capital when he is free and not an exchangeable asset can be sold in the market, but it can invest in it in many other kinds by train it, educate it and other kinds of investment. The term human capitals define by (Todaro, Smith 2009)"The use for education, health and other human capitals that can raise productivities when increased". Moreover, human capitals are emphasis on indirect capacity to enlarge the utility by growing incomes.

Benefit could be obtained of human capital with superior skill to the progress of worker mobility across industries occupations, higher incomes for people and new opportunities in other places. The more skilled people the more flexible work force, the more able to absorb new ideas, adopt foreign technology, improve the local technology, understanding and add knowledge from external experience to the local market. For example the more educated farmer is more efficient in agriculture .He will promote the technology and trade to these sector. It's recognized that human capital includes the key role to improve the diverse in productivities. It increased the adaptability and allocates efficiency. So Investment in human capital will promote many benefits such as social cohesion, full employment and economic growth, development in all fields.

Indicators of the demand of invest in human capital through education

The more educated employer the more earning incomes in the modern sector opportunity. That is clear when you look at the gap between urban and rural wages, as we know the rural people are less educated than urban one, so the wages are less in rural areas. When governments tried to developed this area to be richer, more productive, reduced poverty. They should invest in human capital as we defined the human capital as the factor that brought the benefit through economic activities. The need for education increased day after day and there is some key indicators show demand of it. First, the numbers of schools enrolment are increased in most of countries.(George Psachar- D poulos, 1996) studies on 98 countries show that economic growth are associated with school enrolment and that was agreed by the (World Bank, 1993a)when some counties have the same levels in schools enrolment in 1960 such as Pakistan and Korea ,but finally in 1980 Korea has GDP higher than Pakistan GDP three times with large different rates in primary school enrolment by (Barro,1991). Second, improve the quality of education and skills training. This indicator is developed every day to meet the need of each demand and lots of researches are done to obtain the latest programmes of training. Finally, increase the number of models of schooling systems. For example technical schools, commercial schools, industrial schools....etc. The demands of investment in human capital on the other hand take two types one is individuals' demands and the other is institutional one. The demand for individuals takes many aspects for instance, the needs of higher wages or incomes to secure their lives, the needs of more opportunities for the employer to choose the proper one for his live, and to secure for himself better live on all aspects for example, health, social, political...etc. Furthermore the institutional demands are focus in their objectives, so they preferred educated employer to be more productive one. This employer will be more familiar with the new systems, machines and computers in recent modern systems than less educated employer. Indeed that will save time and money for the institutions and at the end of the day that will developed them. All of that could be gained from investment on students and employers through education. As a result (Schultz) proposed that investment in education is the major form of investment in human capital.

Human capital stock measurement

The impact of human capital investment is quite considerable. So, before invest in human capital the stock of human capital should be measured to know the strength and the limitation in which part of human development (education) and then try to enlarge the investment in this part. That will help to reach the objectives of the nations to develop in each aspect. The literature provides lots of methods of measuring, but in this paper will try to focus on the methods that widely used.

Referring to OECD there is three approaches have been used to assess human capital stocks. These three methods are to account the total amount of the knowledge in different ways and how they are distributed with the population. It's hard to measure individual's skills or group's skills to spin them into productivity, so these measurements give an estimated measure for the activities. The human attribute give the economic its value and cannot easily account it.

First measurement is educational attainment; which use the highest level of education completed by each person. It uses two kinds of measurement qualification and years and it's commonly used to measure human capital, but this way make ranking of human capital variable from country to other because they have different standard for each levels, but it could be estimated for instance the primary level seen as one level in all countries so any one complete the primary level in United state have the same person qualification in China with primary education completed. Bearing in mind that everyone has the right to educate and to enter the school and other consideration should taking into account the distribution of gender in education in many countries.

The second measurement of human capital stock is measuring adult skills directly. To make a test for the adult to determine whether they have certain attribute relevant to economic activities and the main features are:

- Interviews with big number of working-age population in there living place focusing in details in some areas such as social-economic status, various educational back ground and other activities related to human capital formation

-Define number of domains that related to the skills that tested.

- The scores that obtained when testing each domain.

-Grouping of these result into levels of performance from 1-5 (1 means failed to performance at minimum level)

Similar approach are developed by OECD which called "life skills" such as solving problem and the government in this approach should define what skills they need to test or measure which is hard and the interviews are extremely expensive and take long time to have any results.

The third approach is adult literacy as known the better adult (worker) who is literate and this person is qualified in two ways:

-The proportion of the people performance at levels of education do not met their educational level. - Diversity in average of people literacy performance with the same attainment.

Other measurements by (Harbison, Myers 1965):

-Levels of educational attainment same as OECD measurement. Thus the comparison will be difficult.

-The number of people in relation to the workforce who are in high level occupation. That means the number of persons in each group of worker for example teachers, managers, doctors and many other groups, but that do not give any sense to the holistic development and do not simulate the qualifications

-Statistical analysis measurement for example number of teachers per 10,000 populations or any other kind of job for instance engineers, doctors, and dentists per 10,000 populations. Thais approach had limitation that excludes the qualification. Another statistical measure is the enrolment of pupils in each level as percentage to the population.

The result of different measurement is not similar and the human capital cannot measure by individuals. Educational attainment measurement is wide range used as a result to the available data. On the other hand direct skill test was accurate measure.

Investment in human capital

Development has lots of aspects for example economic and social which is important in human society, so the style and the purpose of development have different affect on education system. If we see it the way round will be the contribution of schooling system will be different from country to other to development. As a result Investment in human capital associated with the public sectors which depend on the governments. GDP spending on public education and training is various from country to country. Also spending per student (per capital) is variable and considerable either in schooling or in any designed programme. These programmes are one way to invest in human capital by assist employment and unemployment to enhance the labour market. In fact the type of investment in human capital is different according to the type of economic activities, available resources, and human society. So some countries economic based on high technology industry, as a result they should set education and training system from this perspective. The investment will take many kinds it could be through firms or the organisations by train their labours toward specific needs of their objectives. That will make the labour more productive and give them the value to economic. As clear before the human capital stock is not easy to estimate it unless each firm in this situation plan their employment development by training and give it a cost. Some Europe countries make a survey to estimate the enterprises and firms expenditure on training called "European labour cost survey" but the other countries did not. Moving to other kind of invest by families, each family spend considerable amount on their children which not easy to account and big part of that is under educational aspect such as buying stories ,computers and other educational stuff. So, there is no way to measure accurate number of contribution by families to their children to create skills and knowledge. Moreover, providing public education that related to the orientation objective of the communities or nations for example to provide curriculum in universities that associated with the industrial policy.

There are some aspect should take in into account when plan for investment in human capital to develop the process of investment and to enlarge the outcomes from these investment. First, emphasis on quality against quantity that is crucial for modern nation development. Second, emphasis on formal training before employment versus on-job-training. Some basic skills should be trained in schools and others can be done in different ways such as courses, pre employment training, but some kinds of training cannot be done unless in -job-training like armed force training. Third, emphasis on individuals needs against the state desires. Furthermore establishing public libraries have many advantages for example to encourage peoples to read more, learn more; make researches ,hence to developed themselves as self education.

Case study

In 1995 China spend 2.5% of its GDP on investment in schooling and 30%of the same GDP on physical investment on the other hand United State was spending 5.4% of there GDP in schooling and 17% of the physical investment. So China spending on education (investing on people) from GDP was below other country. Furthermore China investment in physical capital to human capital annually is higher than most of countries. The recent policy in China is to invest more in physical capital than human capital and to ignore the fundamental role to invest in education. These policies reduce the economic growth in China and promote inequity to the country. Large amount of studies insure that more educated and skilled people are better to change the economic and as China now enter the world market, so the need of educated work force will increased. Thus the investment in physical capital is required more educated and trained worker. Capitals and skills are complementary and the imbalanced investment strategy reduce the return of physical and human capital .On the other hand when China over invest in one type of capital or the other way round it will lose the opportunities to enhance there wealth. The microeconomic data propose that there is in fact significant underinvestment in human capital in China. When comparing between the productivity in education to the wages that paid in China, it estimated that the labour did not pay there skills what it seem to be worth.


As education is the key factor to development, so any kind of education will have benefit on the human, but the most important thing is to use it in proper place to gain the advantage from it. Human capital has the role to increase the mobility and effectiveness to development. That could be measured in many ways but the most useable one is the education attainment which based on measuring the qualification and years. Statistical measurement on the other hand which could estimate reasonable numbers, but without qualification means. We can summarize the human capital stock could not be measured accrue from each aspect. The indicators of the demand are obvious and it is divided into institutional and individual demands. Never the less investment in human capital has many faces to turn up with, all are to same objectives which give the person more knowledge, skills to secure his or her live and give the economic its value. When the government realize the benefit from investment in human capital, they will allocate considerable amount of their budget, researches and time to gain large amount of its advantage. As they know that better investment in human capital that will promote values, benefits, development to the societies. More over the modern human capital associated with nations growth, companies expand, and individuals development. That will create sustainability and will maintain the development environment to yield highest return.

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