Human Capital and Economic growth in Zambia

In the political dispensation of the New Dawn government, it is evident that human capital is a top priority. Evidence of this is the massive recruitment across health and education sectors as well as the re-introduction of the free education policy. One can infer that these policy directives are intended to result in positive economic benefits for the country at both macro and micro levels. This article aims to provide a more in depth analysis into the technicalities for exactly how the proposed advances in human capital will contribute to economic development and shed light on the less optimistic perspective of a weak correlation between the two.

Before delving into this relationship, it is important to note that the concept of human capital is more associated with human development as opposed to economic growth- though it can be argued that there is a direct link between human capital and economic growth. An indication of this is the inclusion of health and education metrics in the Human Development Index (HDI), which is a measure of achievements in human development dimensions.  Health and literacy- in the development context- are viewed as cardinal to the quality of life of the people within the economy.

Various authors have advanced their opinions on the link between human capital and economic growth. According to an AFDB publication, by Appleton and Teal there is less of a direct relationship between investments in education and health with economic growth than there is with the return on physical capital. Given the complementary nature of human and physical capital, investments in the former raise the return of physical capital. A direct link between human capital and economic growth however is less pronounced. They do concede, however, and this is in agreement with economic policy, that a country’s initial level of human capital has a bearing on the level of economic growth it can experience. This reason has been advanced as a contributing factor to why East and South Asia have developed more rapidly than Africa in spite of the widespread health and education investments that have been made on African continent post-independence. A further explanation for the disparity in growth between Asia and Africa, is the fact that in the case of the latter the rise in human capital has not been complemented by a commensurate rise in physical capital. Proceeding from this theory the goal of investing in human capital must be to match human with physical capital and thus when these investments are made in a vacuum the standards of living will improve, however, it will not necessarily raise national income. Moreover, it is also important to consider how much to invest in the alternate forms of capital, relative to each other, something which is country specific and likely to vary over time.

A more optimistic view is outlined by the EU, in a publication by Wilson & Briscoe, which studies the relationship within EU member states over a 30 year period. During this period the EU economy recorded significant growth whilst spending on education within the states was maintained at a constant rate over the period. A more detailed analysis however comes from an inspection of micro fundamentals and in so doing introducing the concept of rate of return or in other words the return on human capital investments, whose return are generally positive. Educated and healthy individuals are more productive and thus earn higher incomes than their non-educated counterparts. Thus having a large number of such individuals within an economy implies higher national income and thus it can be construed that human capital advances will result in higher GDP. The societal rate of return on education for instance has been estimated at between 6%-12%, implying that the annual income from investments in education as a  proportion of the total investment lie within this range, a figure which is comparable with other rates on other forms of capital. This perspective draws from the production function which has as its components labour and capital (Y=F(K,L)). Thus if we raise either labour or capital or both, we will experience a rise in output.

To conclude, whether the new dawn’s investments in human capital will result in economic growth is debatable as well as being dependent on other factors. Whether or not this may be the case, what is certain is that investments in health and education will definitely improve the lives of Zambians. However, human capital is not a panacea to low growth. This notwithstanding it is re-assuring to note that the new government is not anchoring its transformation agenda solely on enhancing human capital.