How human capital contributes to economic development?

Introduction

The education of a country plays a fundamental role in the development and economic growth since its beginnings in the scientific and intellectual revolution of the sixteenth and seventeenth centuries, and then the age of enlightenment which corresponds to the eighteenth century where the idea of progress was transmitted, this philosophy comes from the last century. Human capital has been an issue that has caused controversy over its role in the Industrial Revolution.

Most economists and economic historians have investigated how the human capital has a major impact on economic performance in a country. The main reason is that individuals invest in education, acquire skills and expertise. This means that everything that they have learned throughout their life is an investment in human capital which in turn seek an economic return. Education provides a high-income to the people and therefore to the economy of their country.

It is essential to analyze the contribution of human capital in the economy. In the development of this essay we will explain two theories that are studied when analyzing education variable, these theories are the human capital theory and signaling theory.

The question that comes to the mind is whether a high growth of general education generates high economic growth or vice versa? According to the theory and empirical evidence shows that education is leading a high level of economic growth, ie, that there is causality.

There are different approaches to private and social returns to education but most empirical studies are based on private returns. The problems that arise in the measurement of education on economic growth of a country are omitted variables and reverse causality.

Intellectual Origins of Modern Economic Growth

In the sixteenth century the Baconian program diffused knowledge and natural philosophy was applied to solve problems with technology and get economic growth, in this century scientific advances were crucial for industrialization. While in the seventeenth century began the age of enlightenment where institutions encouraged and promoted knowledge and technological advancement, this process without the Industrial Revolution would not have had the same impact.