Much of the discussion on capital accumulation and economic growth focuses on physical capital. But as we can imagine, human capital is also very important. As we can see from this graph (Picture included), international data on educational attainment shows a positive relationship between average years of schooling and real GDP per capita.
Consider that the government of a poor country is trying to decide whether to encourage investment in physical capital, or encourage research and development. Which of the two (investment in physical capital, or research and development) would you favor? Would your answer change if the country is considering human capital investment rather than physical capital investment? Can the accumulation of human capital be responsible for growth in the long run? Why or why not?
Sample Solution
