0.1 Economic development is about all of economics  (Page 6/14)

Trade and good policy can also help growth along. Chronically bad economic policy can by itself doom an economy to wrenching poverty.

Examples of corrosive bad policies:

• Ghana 1971-1985
• Nigeria 1965-2000
• Burma 1950- 2012
• Argentina 1948-1960, 1980-1990, 2008-2009, 2011-2013

What has mattered most throughout history and in the 20th and 21st centuries? A very good case can be made for Capital Formation and Technological Innovation.

And by capital formation we do not mean just physical capital formation — investments in equipment, roads, harbors, computers etc.

This kind of capital formation is indeed important. Consider the vast interstate highway system in the United States. Construction began under President Eisenhower in 1954. Of the billions upon billions invested on this road system since 1954, the rate of return has been 11%.

There are many other kinds of capital, deemed important by economists who study economic development.

• Physical capital
• Human capital
• Intangible capital ( institutions , legal structure, governance mechanisms)
• Natural capital (forests, soils, water, energy, fisheries)

All of these are featured in this collection.

Consider Human Capital , which includes:

• Investments in primary and secondary education
• University education
• On-the-job training and formal training programs within business firms
• Learning “by doing”

Investments in Human Capital are critical for technological change and economic growth. Indeed, research by Bob Solow of MIT and his disciples suggests that, at least in the U.S., as much as 80% of growth has been due to investments in human capital and the associated technological change that goes with it.

By the end of this book, it will be evident several lessons emerge from study of the past six decades of economic development. A summary preview of these lessons may provide the reader with a platform that will help you knit together all of the important, and largely interdependent, factors influencing economic growth and development.

Ten major lessons from six decades of economic development

By the end of this collection, it will be evident that several lessons emerge from the study of the past six decades of economic development. A summary preview of these lessons may provide the reader with a platform that will help knit together all of the important, and largely interdependent, factors influencing economic growth and development.

The ten most important of these lessons have to do with:

1) The Role of Human Capital in Economic Growth

Human capital can be contrasted with physical capital. Physical capital consists of investments in plant and equipment, computers, transport and communications networks, roads, highway, aircraft etc. The role of physical capital in economic growth has long been recognized as critically important. But since about 1970, economists and other researchers have come to understand that investments in human capital are at least as important for economic growth as investment in physical capital.

Human capital is the name economists give to investments in education and health and other human attributes , that when combined with physical capital, harnesses human skills and ideas to make economic growth possible.