Human capital adds a new dimension to development
Wednesday, 12 August 2009
Salahuddin Ahmed
A huge population is said to be the biggest problem of Bangladesh. With a population of not less than one hundred and fifty million, the density of population of Bangladesh is the highest in the world. Is it possible to turn this biggest problem of our country into our most precious gift?
Since we have a very large population, the per capita income in Bangladesh is very low. It is extremely important to determine per capita income levels and their rates of growth. Many economists refer this analysis as the growth theory. This is vital to dig into the surface of this theory that directly relates to the overall development of a country. The growth theory typically deals with production function, which is the relationship between the output of a firm, sector or economy and inputs such as labour and physical capital.
Precisely speaking, this production function applies two economic variables, such as per capita income and the capital-labour ratio. It has been found from the study on many countries that there is a positive relationship between the capital-labour ratio and per capita income. As the capital-labour ratio increases and workers have more physical capital to work with, the per capita income increases consequently. This is a process known as capital deepening. If we consider Bangladesh, we can very much realise that we do not have such physical capital to work with. That leaves us with only the inputs of labour through which we should make the process of capital deepening happen in reality.
It is very much a reality that countries around the globe invest in their population, which in economic term can be referred as human capital. Human capital is now considered to be the third factor of production that plays a vital role in the new growth theory models. Including human capital in growth theory acknowledges that labour is more than just hours worked. It reflects skills, abilities and education. Greater levels of education and training allow an economy to operate in a state of greater technical efficiency.
Technology is now an endogenous variable in the new intensive production function that can be influenced by education and training policies. It is obvious that increase in human capital shifts the intensive production function upwards. Scholars like Mankiw, Romer, Weil and Rodick mention that if we can include human capital in growth model, it helps in better explaining the variation of per capita income among the countries around the globe. It is important to mention that the inclusion of human capital would have important relations with three components of human development index (HDI). These components inescapably include health and education.
There is no doubt that human capital would have its end product if sound education and health policies exist in a country. Colin Knox of the School of Policy Studies of University of Ulster, UK mentions about the health and education sector of Bangladesh very specifically in his article "Building Trust Amidst Corruption in Bangladesh". Mr. Knox mentions that significant corruption exists in these sectors and this is a major impediment to the overall development of the country. Transparency International Bangladesh (TIB) has been acting very sensibly to provide with information regarding the corruption scenario in these highly important sectors in Bangladesh. It has been found that considerable corruption exists in education and health sectors in the form of bribery, deception, nepotism, negligence of duties, misappropriation of funds etc. Data gathered through the 2007 National Household Survey revealed these dismal scenarios that TIB depicts in its reports.
Since we are talking about the inclusion of human capital in growth model, we do need to have strong education and health policies to get the best result of human capital. Human capital means investment on people to make them asset for the country. If people make this investment in a wrong way, it could ruin the whole development process. Health and education are interrelated. As we are dealing with the highest density of population in the world, we need to be very sensible in our action plan regarding these two sectors of health and population.
(The writer is an MBA Student and Graduate Assistant at Ashland University, OH, USA. He can be reached at e-mail: sahmed@ashland.edu)
A huge population is said to be the biggest problem of Bangladesh. With a population of not less than one hundred and fifty million, the density of population of Bangladesh is the highest in the world. Is it possible to turn this biggest problem of our country into our most precious gift?
Since we have a very large population, the per capita income in Bangladesh is very low. It is extremely important to determine per capita income levels and their rates of growth. Many economists refer this analysis as the growth theory. This is vital to dig into the surface of this theory that directly relates to the overall development of a country. The growth theory typically deals with production function, which is the relationship between the output of a firm, sector or economy and inputs such as labour and physical capital.
Precisely speaking, this production function applies two economic variables, such as per capita income and the capital-labour ratio. It has been found from the study on many countries that there is a positive relationship between the capital-labour ratio and per capita income. As the capital-labour ratio increases and workers have more physical capital to work with, the per capita income increases consequently. This is a process known as capital deepening. If we consider Bangladesh, we can very much realise that we do not have such physical capital to work with. That leaves us with only the inputs of labour through which we should make the process of capital deepening happen in reality.
It is very much a reality that countries around the globe invest in their population, which in economic term can be referred as human capital. Human capital is now considered to be the third factor of production that plays a vital role in the new growth theory models. Including human capital in growth theory acknowledges that labour is more than just hours worked. It reflects skills, abilities and education. Greater levels of education and training allow an economy to operate in a state of greater technical efficiency.
Technology is now an endogenous variable in the new intensive production function that can be influenced by education and training policies. It is obvious that increase in human capital shifts the intensive production function upwards. Scholars like Mankiw, Romer, Weil and Rodick mention that if we can include human capital in growth model, it helps in better explaining the variation of per capita income among the countries around the globe. It is important to mention that the inclusion of human capital would have important relations with three components of human development index (HDI). These components inescapably include health and education.
There is no doubt that human capital would have its end product if sound education and health policies exist in a country. Colin Knox of the School of Policy Studies of University of Ulster, UK mentions about the health and education sector of Bangladesh very specifically in his article "Building Trust Amidst Corruption in Bangladesh". Mr. Knox mentions that significant corruption exists in these sectors and this is a major impediment to the overall development of the country. Transparency International Bangladesh (TIB) has been acting very sensibly to provide with information regarding the corruption scenario in these highly important sectors in Bangladesh. It has been found that considerable corruption exists in education and health sectors in the form of bribery, deception, nepotism, negligence of duties, misappropriation of funds etc. Data gathered through the 2007 National Household Survey revealed these dismal scenarios that TIB depicts in its reports.
Since we are talking about the inclusion of human capital in growth model, we do need to have strong education and health policies to get the best result of human capital. Human capital means investment on people to make them asset for the country. If people make this investment in a wrong way, it could ruin the whole development process. Health and education are interrelated. As we are dealing with the highest density of population in the world, we need to be very sensible in our action plan regarding these two sectors of health and population.
(The writer is an MBA Student and Graduate Assistant at Ashland University, OH, USA. He can be reached at e-mail: sahmed@ashland.edu)