Working Paper 39 - Human Capital and Economic Development

Health and education are both components of human capital and contributors to human welfare. Oneindex of human welfare, which incorporates income, education and health, shows that Africa’s level of‘human development’ is the lowest of any region in the world. In this paper we will frequently compareAfrica with South Asia. While Africa’s level of human development is lower than that of South Asia, itsper capita income is higher. Africa’s poor economic performance has been most marked in its growthrate which has been half that of South Asia. As Africa has found since 1980, slow economic growthseverely limits the ability of governments and households to fund further investments in health andeducation. Low investments in human capital may impinge on already low growth rates of income. Suchinterrelations might be thought to imply a vicious circle of development, but this should not be overstated.Poor countries have considerable discretion over how much to invest in health and education. SinceIndependence, Africa has achieved a rapid growth of some aspects of human capital - particularly inthe expansion of education - despite starting from a low level of income. The expansion of the humancapital stock has not been matched by a commensurate rise in physical capital. The result has been lowgrowth of incomes and low returns to the educational investment.This paper provides an overview of Africa’s achievements in the formation of human capital, andits impact on economic growth and welfare. Human capital, economic growth and welfare are closelyinterrelated. Section 2 provides an assessment of Africa’s human development in the context of otherdeveloping regions. Section 3 turns to the central issue of how to promote economic growth in Africaand the role of human capital in that process. Section 4 presents evidence on the linkages betweeneducation and health outcomes, while section 5 provides some concluding remarks.