The Nexus Between Human Capital and Economic Growth


Human capital refers to personal characteristics that are essential to economic and business processes. Health and education are two closely related components of human capital that contribute to productivity and output growth. The greater the level of human capital, the greater the level of performance, and the more effectively a nation can compete in the global economy. This article discusses the deficiency of human capital and its impact on economic growth and productivity in terms of education, or to emphasis the causes of intellectual brain drain in Pakistan, which is the primary cause of human capital deficiency.

For a number of years, Pakistan has been struggling with a significant lack of human capital; it is a major hurdle to the country’s development. This had a detrimental impact on the country’s overall rate of economic expansion. Literacy and education levels in Pakistan are dismally low, which is a clear indication of the country’s shortage of human resources. According to the Pakistan economic survey 2021-2022, in terms of education levels the survey reported that only 1.77 percent of GDP was spent on the education sector last year while the literacy rate was recorded at 63pc. The education sector of the country’s national budget receives only a marginal amount of funding from the central government.

People worry that the human capital gap will get bigger because of how quickly technology, people, population growth, and the environment change around the world. Many several reasons include the education system in Pakistan does not adequately equip students with the skills required for the job market. As a result, there is a significant skills mismatch, and many graduates are not able to find suitable employment, and leave the country in search of better opportunities, or the gender disparity limits the potential of half of the population and contributes to a smaller pool of human capital. Also it is a highly unequal society social inequality impacts some to have limited access to education. Main cause is inadequate investment in education these factors ultimately affects the development of human capital.

Pakistan’s economic progress is being hurt by the lack of human capital in a big way. Without skilled workers, it’s hard to get foreign funding, boost productivity, and come up with new ideas. Also, a lack of trained workers makes unemployment rates go up and slows down economic growth as a whole. A lot of the money the government spends goes towards investing in capital, so more attention should be paid to advanced technology, training, or the education sector and the development of skills that increase human capital output. Income inequality should be lessened with the help of good economic measures from the government.

A shortage of investment in education is one of the key causes of inadequate human capital. The percentage of Pakistan GDP on education spending is 2.38 percent from the latest year 2021.according to the latest available data there are approximately 280,000 schools in Pakistan. In developed countries like France statistics reveal that the share of education spending in France in 2021 is 6.75 percent of GDP. Despite the fact that Pakistan education statistics emphasize the critical need for investment in educational and training programs in order to develop the country’s human capital. The education system has numerous challenges; this can be accomplished by boosting government investment on education and training programs, offering incentives for people to pursue higher education, and introducing training programs to teach skills that would allow them to contribute to the country’s economy.

Furthermore, Pakistan’s society is highly stratified, with large income disparities between rich and poor. This financial inequalities creates a scenario in which the wealthy can afford high-quality education, medical services, and other services that aid in the development of human capital. As a result, most of society is left behind, with unfulfilled potential. The rapid increase in the world’s population is another major factor. A large number of children are born each year, putting stress on an already weak education system and making it more difficult to offer excellent education to all children. This rapid growth is a challenge for Pakistan because it increases poverty, joblessness, and illiteracy.

In addition, there has been a major brain drain as a result of the bad a situation of law and order in the country. Higher earnings and income together with employment mobility are luring migrants away from countries with fewer prospects and greater political instability. Pakistan must address this problem or risk losing talented workers at an alarming rate. Urgent action is needed in Pakistan to either stabilize the economy or create more jobs that compensate people fairly for their skills and experience. A merit-based system also needs to be implemented. Even though Pakistanis working abroad send money back home in the form of money transfers, the truth is that no amount of aid will ever be sufficient. Developing countries have a severe lack of trained and skilled people since their best and brightest have left for the industrialized world.

Foreign direct investment (FDI) can be a significant source of capital but also have an impact foreign companies may bring in their own skilled workers, which can result in a brain drain and reduce the opportunities available for local workers. This can lead to a situation where Pakistan’s human capital become less competitive compared to other nations. To address these security threats Pakistan can encourage foreign companies to invest in a sector that promotes development of human capital. Hence, policy makers should emphasize on the strong educational curriculum and vocational training or on the level of human capital threshold that could be considered as minimum as to maximize the growth effect of FDI is recommendable.

Investment in human capital has a beneficial effect on economic growth because of the long-term correlation between the two. The construction of human capital is dependent not only on education and training however they are the primary determinants but also on the amount of social services and healthcare that focus on creating and sustaining human capital. Total productivity rises in line with workers’ levels of education because innovative problem-solvers are more likely to be found among the educated. According to the Pakistan Economic Survey 2021-22 the education related expenditures witnessed a decline in FY2020 due to closure of educational institutes amongst country wide lockdown and decrease in current expenditure due to COVID-19 pandemic. Or the public sector expenditure on health was estimated at 1.2 percent of GDP in 2020-21 as compared to 1.1 percent in 2019-20.

In conclusion, Pakistan’s economy faces serious challenges due to a shortage of human capital. Investing in education and training programs can help people acquire the skills needed, expanding access to health services because health has a long-term effect on a person’s ability to learn, promoting gender equality, and removing barriers to education and employment for women in Pakistan are all important ways to tackle this problem. Doing so will enable Pakistan to realize its immense potential for economic growth and development, which will be to the country’s and its people’s benefit in the form of a more prosperous and equitable future. Human capital is inextricably linked to economic expansion. Unemployment is a major contributor to brain drain in Pakistan, limiting the country’s economic growth and threatening its ability to retain its talented workforce. To solve this problem, the government should either expand the number of jobs or raise salaries generally.

Fizza Rehman
Fizza Rehman
Undergraduate student of BS Economics currently studying in National Defence University of Islamabad.