Human Capital and Economic Growth: The Role of Governance

Ali Muhammad, Abiodun Egbetokun, Manzoor Hussain Memon


Economists agree that human capital is an important
determinant of economic growth [Arrow (1962); Aghion and Howitt (1992)].
Human capital-led growth generally concludes the positive impact of the
two with the help of existing developed theories and empirical
evidences. Nonetheless, the standard empirical result of a direct
relationship between human capital (however measured) and economic
growth, has been criticised on several fronts. First, the impact of
other growth-related factors like quality of education, health of the
labour force, inflation, corruption, unemployment, rule of law, etc.
should not be ignored. These endogenous characteristics of a country are
included in Becker‘s (1993) definition of human capital. In addition, as
noted by Abramovitz (1986), social capabilities are important in the
adoption and diffusion of technologies but countries differ in social
capabilities. Therefore, to the extent to which human capital
contributes to economic growth through innovation, its effect is
conditioned by the country‘s social capabilities which include factors
like quality of institutions and governance.

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