National Human Capital or National Institutions: Multilevel Theory Perspective

Abstract

This article contributes management insight into the economic debate on the primacy of national human capital or national institutions in national economic development. The article utilized TIMSS Assessment results and the World Competitiveness Reports data for its statistical analysis via the use of multiple regressions. According to the statistical analysis, national human capital has significantly less effect on national economic development that the national institutional measures. The article employed the Multilevel theory of organizations to explain this phenomenon and extrapolated it to the level of a country. The Multilevel model of human capital creation explains how the collective organizational human capital resource is created out of individual-level organizational members’ knowledge, skills and abilities thanks to the presence of enabling factors. The article shows that national institutions are such enabling factors on country level. Utilization of the human capital resource of a country’s citizens is mediated by the factor of national institutions. With the absence of high quality institutions individual human capital of a country’s citizens does not agglomerate into the national human capital resource. Unless open and transparent well-developed national institutions exist, the country will not have good economic development even though the human capital level of its citizens is adequate. Investing money in education without building a system of strong national institutions will not bring the desired results.