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Human Capital and Economic Growth

Human Capital and Economic Growth. 2006. 7 Lee Young Youn Kangwon National University Division of Economics and Tradea. I. Long-term Growth Trends.

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Human Capital and Economic Growth

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  1. Human Capital and Economic Growth 2006. 7 Lee Young Youn Kangwon National University Division of Economics and Tradea

  2. I. Long-term Growth Trends • Economic growth in the past decade was fastest in the developing economies of East Asia and Pacific (averaging 6.7 percent a year) and South Asia (5.5 percent). Leading this growth were China and India, accounting for more than 70 percent of its region’s output. The two regions continued to do well in 2003, with East Asia registering 8.1 percent growth and South Asia recording 7.5percent growth. • Economic growth varies greatly according to regions (World Development Indicators,2005)

  3. Economic Growth by Region(%)

  4. Gross Domestic Product(2000 US$ billion)

  5. Income Disparities among Countries • There are large disparities in average living standards. • Most of large developing countries roughly maintained their positions relative to the USA between 1960 and 1990 • There does not appear to be an absolute poverty trap. • There is no general tendency for countries to converge to common level of per capita income

  6. Economic Growth in Selected Countries(1960-2000) * PPP adjusted Prices of 1996. Source: Hetson, Summers, Aten(2002)

  7. GDP Relative to the US , Selected countries, 1960 and 1990

  8. Growth Miracles and Disasters, 1960-1990Annual Growth Rates of Output per Worker Miracles Growth Disasters Growth Korea 6.1 Ghana -0.3 Botswana 5.9 Venezuela -0.5 Hong Kong 5.8 Mozambique -0.7 Taiwan 5.8 Nicaragua -0.7 Singapore 5.4 Mauritania -0.8 Japan 5.2 Zambia -0.8 Malta 4.8 Mali -1.0 Cyprus 4.4 Madagascar -1.3 Seychelles 4.4 Chad -1.7 Lesotho 4.4 Guyana -2.1

  9. The Proximate Sources of Growth • Investment in Physical Capital • Labor Forces (Population Growth) • Natural Resources • Human Capital Accumulation • Research and Development • Trade Policies • Financial Markets • Social and Political Factors

  10. Over the last 40 Years • Output growth: 3.5% a year • Productivity of Labor growth:2.4% - The contribution of Education:13~30% * Human Capital will become more important in Knowledge-based economy.

  11. Why might a more highly educated workforce increase economic growth? • More mobile and adaptable • Can learn new tasks and new skills more easily • Can use a wider range of technologies and sophisticated equipments • Needs less supervision • More creative in thinking • Produce a less crime-ridden and healthier environment

  12. Human Capital and the Quality of Growth • Sustainable growth is the result in part of positive externalities generated by education, an important form of human capital • Human capital is an outcome of as well as an input to the quality of growth • Human capital has to accumulated and maintained by its owners, may well be distributed unequally, and has value may not be realized in the absence of appropriate markets and institutions.

  13. Flow Diagram of Education Increased Investment in Increased Saving Human Capital Increased Physical Investment Increased Increased (+) Educational Stock of (+)Gross Domestic Increased Attainment Human Capital Product Income Decreased Labor ------- (-) Force while in school * Eventually , Positive effects outweigh negative effects on GDP

  14. Three Issues of human capital as a productive asset • The Distribution Issue - Children from poor families benefit little from public spending on schooling. • The Demand Issue - What does determine how much household invest privately and societies invest collectively in their children’s education and health and in other form of human capital? - parent’s education and income, capital market, expected income, quality of public school, resources abundance, market openness, democracy.

  15. Education and expenditure Inequality in India,2000

  16. Inequality of Education and Income

  17. Three Issues of human capital as a productive asset (continued) • The problem of other distortions - Human capital value depends on its owner’s ability to deploy it in a competitive markets in which the rule of game reward innovation, entrepreneurship, and higher productivity - Education really seems to payoff in more open economies.

  18. Education, Openness, and Economic rates of Return

  19. Growth According to Trade Orientation (1963-1998) Trade Orientation Average Yearly Growth Rates (41 developing countries) 1963-1973 1973-1985 1985-1998 Strongly Outward 6.90% 5.90% 6.80% Moderately Outward 4.9 1.6 2.4 Moderately Inward 4 1.7 -0.1 Strongly Inward 1.6 -0.1 -0.2 Source: Dominick Salvatore, International Economics, 7th Edition. John Wiley & Sons .PP381

  20. Global Competitiveness Index(2005) Country GCI Rank TechnologyIndex Rank PublicInstitutions Index Rank Macroeconomic Environment Index Rank Finland USA Taiwan Singapore Japan S. Korea China India Indonesia Russia Mongolia 1 2 5 6 12 17 49 50 74 75 96 2 1 3 10 8 7 64 55 66 73 81 5 18 26 4 14 42 56 52 89 91 93 4 23 17 1 42 25 33 50 64 58 105

  21. Top performers in the nine pillars of the Global Index Education and the extent to which countries are able to upgrade the skills and training of the labor forces have acquired growing importance as indicators of a country’s future growth potential. Country Institution Infrastructure Macro-economy Health Higher and primary education education and Training Singapore Denmark Chile Japan Finland USA 1 5 9 69 8 2 1 16 23 3 27 34 1 25 42 26 9 93 1 16 3 10 10 10 1 16 8 62 47 2

  22. Top performers in the nine pillars of the Global Index (continued)

  23. Global Business Competitiveness Index(2005) Country BCI Rank Companyoperating and strategy ranking Qualityof the national business environment ranking Finland USA Taiwan Singapore Japan S. Korea China India Indonesia Russia Mongolia 1 2 5 8 14 24 57 31 59 74 104 1 9 14 3 13 17 53 30 50 77 98 2 1 5 10 15 24 58 31 59 70 102

  24. Country Voice and Accountability Political Stability Government Effectiveness Regulation Quality Rule of Law Control of Corruption Finland 1.50(1.71) 1.65(1.45) 2.06(1.89) 1.79(1.50) 1.97(2.08) 2.53(2.23) USA 1.21(1.53) 0.47(1.06) 1.80(2.02) 1.22(1.56) 1.58(1.79) 1.83(1.71) Singapore -0.13(0.40) 1.48(1.39) 2.25(2.51) 1.87(2.29) 1.82(2.13) 2.44(2.50) Japan 0.98(1.08) 0.99(1.08) 1.21(1.36) 1.04(0.84) 1.39(1.60) 1.19(1.22) Taiwan 0.95(0.55) 0.52(1.01) 1.15(1.42) 1.29(1.17) 0.83(1.02) 0.64(0.74) S. Korea 0.73(0.71) 0.45(0.16) 0.95(0.64) 0.69(0.69) 0.67(0.81) 0.17(0.54) China -1.54(-1.29) -0.07(0.12) 0.11(0.18) -0.45(-0.06) -0.47(-0.45) -0.51(-0.01) India 0.27(0.28) 0.81(-0.77) -0.04(-0.14) -0.59(-0.09) -0.09(-0.01) -0.31(-0.31) Indonesia -0.44(-1.15) -1.38(-0.45) -0.36(0.18) -0.42(0.27) -0.91(-0.36) -0.90(-0.47) Russia -0.81(-0.36) -0.85(-0.93) -0.21(-0.50) -0.51(-0.41) -0.70(-0.84) -0.72(-0.74) Mongolia 0.45(0.38) 0.48(0.80) -0.46(-0.27) 0.18(-0.57) 0.18(0.48) -0.51(0.37) N. Korea -2.05(-1.84) -0.67(-1.20) -1.68(-1.30) -2.05(-2.43) -1.15(-1.04) -1.46(-0.31) Governance Indicators (2004) ( )은 1996년 추정치를 나타냄. Source: Daniel Kaufman, Aart Kraay, and Massimo Mastruzzi, "Governance Matters IV: Governance Indicators for 1996-2004, Policy Research Working Paper, No.3630, World Bank, may 2005.

  25. Corruption Perception Index(2005) Sources: Transparency International, Corruption Perceptions Index 2005.

  26. Bribe Payers Index(2002) Rank Score Rank Score 1 Australia 8.5 12 France 5.5 2 Sweden 8.4 13 United States 5.3 3 Switzerland 8.4 14 Japan 5.3 4 Austria 8.2 15 Malaysia 4.3 5 Canada 8.1 16 Hong Kong 4.3 6 Netherlands 7.8 17 Italy 4.1 7 Belgium 7.8 18 South Korea 3.9 8 United Kingdom 6.9 19 Taiwan 3.8 9 Singapore 6.3 20 People’s Republic of China 3.5 10 Germany 6.3 21 Russia 3.2 11 Spain 5.8 Sources: Transparency International , Bribe Payer Index 2002.

  27. The Opacity Index(2004) Country Category OPA OpacityPremium/ COR LEG ENF ACC REG Discount(%) Finland 3 11 23 17 9 13 -1.83 USA 28 19 27 20 10 21 0 Singapore 15 19 25 50 10 24 0.65 Japan 38 24 31 22 22 28 1.51 Korea 61 35 22 30 37 37 3.52 China 74 39 39 56 43 50 6.49 India 74 44 49 30 46 48 6.09 Russia 78 44 39 40 31 46 5.64 sources: The Kurtzman Group, The Global Cost of Opacity: The Opacity Index 2004, MIT Sloan Management Review, October 2004.

  28. Complementary Categories ofSocial Capital structural cognitive Roles and rules Norms Values Attitudes Beliefs Sources and Manifestations Networks and other interpersonal relationships Procedures and Precedents Civic culture Trust,solidarity, cooperation, Generosity Social Organization Horizontal linkages Vertical linkages Domains Dynamic factors Common elements Expectation that lead to cooperative behavior, which produces mutual benefits sources: Norman Uphoff, "Understanding social capital: learning from the analysis and experience of participation." in Social Capital, edited by Partha Dasgupta and Ismail Serageldin, World Bank. 2000.

  29. Conclusion • 1.The new paradigm will concentrate on sustainable and qualitative growth to reach an advanced state of economic development. • 2.The economic operating mechanism of the government should move from the centralized management system to a decentralized on through democratization, privatization and liberalization in such a way to improve both economic efficiency and equity. • 3. Equity and welfare-oriented development principles should replace the growth-first principle. • 4. Development should be directed toward the establishment of human capital-oriented, and knowledge/information-oriented society, which will definitely improve economic efficiency and equity at the same time. • 5. Government should concentrate on its original role for the supply of public goods, correction of government failure and embodiment of the welfare state • 6. The role of government needs adjustment depending on the development stages of nation, but should not be given up. An active role of government is indispensable for developing countries to move toward an advanced countries.

  30. Thank You

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