Education and New Theories of Growth

Abstract

The concept of Human Capital arose out of the awareness that physical capital alone was not enough to explain long run growth. The failure to treat human resources explicitly as a form of capital, as a produced means of production, as the product of investment, was a major drawback of the classical notion of labour. The classical economists viewed labour as a capacity to do manual work requiring little knowledge and skill, a capacity with which, according to this notion, labourers are endowed about equally. Although Adam Smith and Irving Fisher were among the first to clearly present an all-inclusive concept of capital, the mainstream thought was that it was neither appropriate nor practical to apply the concept of capital to human beings. The paper tries to summarize the literature on interrelation between education and Human Development. In this paper we first introduce the concept of Human Capital as envisaged in the post 1960 era with the pioneering work by TW Schultz and some other studies on Human Capital. We then move on to the New Theories of Growth which tried to rectify the shortcomings of the traditional growth theories by encompassing the concept of Human Capital. That Human Capital plays a very important role in economic development has been empirically validated by the growth experiences of South Korea, Japan and the developed countries in the west. We consider this issue in this paper and try to highlight some important facts in this regard with respect to India, Indonesia and Japan.