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The Effect of Increasing Human Capital Investment on Economic Growth and Poverty : A Simulation Exercise (English)

This paper examines the dynamic responses of income and poverty to increased investment in the human capital of new cohorts of workers, using a quantitative macroeconomic model with realistic demography. Compared to a baseline in which the rate of human capital investment currently observed in every country remains constant, the paper examines two alternative scenarios: one in which each country experiences a rate of growth of human capital investment that is typical of what was observed in the decade ending in 2015, and one in which each country raises human capital investment at a rate corresponding to the 75th percentile of what was observed in the data. In the former, world GDP per capita is 5 percent higher than baseline in the year 2050, while the global rate of $1.90 poverty is 0.7 percentage points lower in that year. In the latter, world GDP per capita is 12 percent higher than baseline in 2050, while the rate of $1.90 poverty drops by 1.4 percentage points. These gains are concentrated in poor countries. The paper argues in the context of our model that investing in people is more cost effective than investing in physical capital as a means to achieve specified income or poverty goals.

Details

  • Author

    Collin,Matthew Edward, Weil,David Nathan

  • Document Date

    2018/09/25

  • Report Number

    WPS8590

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    World,

  • Region

    The World Region,

  • Disclosure Date

    2018/09/25

  • Disclosure Status

    Disclosed

  • Doc Name

    The Effect of Increasing Human Capital Investment on Economic Growth and Poverty : A Simulation Exercise

  • Keywords

    physical capital investment; baseline scenario; public expenditure for education; Primary and Secondary Education; Levels of Educational Attainment; rate of productivity growth; changing nature of work; years of schooling; investment rate; increase in income; steady state; rate of change; school attendance rate; working age population; total factor productivity; quality of education; capital per worker; decline in poverty; quality and quantity; secondary school attainment; rate of growth; labor force participation; reduction in poverty; purchasing power parity; physical capital accumulation; gross domestic product; country income group; age of eighteen; average household income; complete secondary education; education for all; production of output; high productivity growth; Type of Investment; long gestation period; adaptation to change; rate of consumption; social discount rate; rate of investment; increase in consumption; Population Age structure; investment in children; physical capital stock; high poverty line; case of health; gross capital formation; standard of living; test score; alternative scenarios; increased investment; survival rate; school quality; age cohort; present value; poverty headcount; income growth; demographic change; health inputs; demographic structure; arithmetic mean; standard deviation; dependency ratio; base case; output growth; poverty threshold; quality measure; median country; dynamic model; young people; dynamic response; educational quality; worker productivity; opportunity cost; Child Health; future value; Education Quality; children's education; health status; middle age; health measures; adult population; educated parent; measure of use; physical ability; attainment data; child stunting; equal distribution; education data; high school; adult health; health outcome; labor workers; labor input; technological change; health expenditure; younger cohort; poverty projection; absolute poverty; development policy; open access; monetary cost; global poverty; poverty goal; educational expenditure; constant return; poverty drop; consumption growth; current investment; increased income; downward bias; demographic trend; endogenous variable; older generations; capital depreciation; hypothetical country; tertiary schooling; improved health; health improvement; upper bind; headcount ratio; older worker; global view; initial value; world population; relative income; relative gain; demographic data; cross-country variation; income inequality; oil producer; poverty target; income rise; worker increase; high correlation; demographic dividend; take time; richer countries; age category; simulation model

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Citation

Collin,Matthew Edward Weil,David Nathan

The Effect of Increasing Human Capital Investment on Economic Growth and Poverty : A Simulation Exercise (English). Policy Research working paper,no. WPS 8590 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/786861537902769850/The-Effect-of-Increasing-Human-Capital-Investment-on-Economic-Growth-and-Poverty-A-Simulation-Exercise