EE460 Thai Economy 1 Development Theory By Schultz : Human Capital

Human Capita In Economic Development

BanthitaLawhastirawong 5004640073 Human capital is the sum of the abilities and knowledge of individual. It measures the quality of the labor supply. To accumulate investment in education, onthe-job training, and other factors that increase ones productivity is the means of human capital investment to engine economic growth. That is, the development of skills is an important factor in production activities. Begin with the traditional neoclassical growth model, for this model the output of an economy grows with respect to more input of capital and labor in which are all physical inputs. Human capital is considered as exogenous. Economy under this model fit with the law of diminishing return to scale. On the contrary, in the early 1960s, Theodore W. Schultz raised the concept of human capital investment. Schultz argues that both knowledge and skill are a form of capital and this capital is also the product of investment. He explained that Western countries output growth as a result of investment in human capital. The first section of the article argues that economists have been afraid to relate to human beings as capital. Schultz believes that the concept of human capital has negative implication that arise from the American history of slavery, and that society is hypersensitive towards anything that serves as a reminder of that system. For Schultz, however, the concept of human capital implies an investment in people. The second section of the article deals with Economic Growth from Human Capital. Schultz argues that the difference in earnings between people relates to the differences in access to education and health. In the long-term human capital investment will strengthen the economy and raise the standard of living. In the third section, Schultz argues that investment in human capital must focus on supporting individuals in acquiring an education, since it is skill and knowledge that affect one's ability to do productive work. He believes that an investment to enhance these capabilities leads to an increase in human productivity, which in turn leads to a positive rate of return. while in the short-term there may be a cost but in the long-term the yield from the investment will far outweigh the cost.

EE460 Thai Economy 3 Development Theory By Schultz : Human Capital

Source: Calculations based on World Bank, World Development Report 1982 (Oxford University Press, 1982) and World Development Indicators 2001 (Washington DC, 2001). Asian Development Bank, Key Indicators of Developing Asian and Pacific Countries (Oxford University Press) various issues.

References
1. Olaniya. D.A., and Okemakinde. T. 2008. Human Capital Theory: Implications for Educational Development. EuroJournalsPublishion, Inc. 24:157-162. 2. Jame R. Walker. n.d. Theodore W. Schultz. http://www.ssc.wisc.edu/~walker/research/schultz9.pdf 3. THEODORE W. SCHULTZ. CENGAGE Learning. http://www.academic.cengage.com/resource_uploads/.../0324321457_65782.pdf