How does investment in human capital contribute to growth?

Human capital and economic growth goes hand in hand. Human capital formation accelerates the economic growth whereas economic growth in turn facilitates human capital formation. The interrelationship between economic growth and human capital formation can be explained with the help of the below mentioned points. 

1. Increase in the Productivity of Physical Capital: Physical capital refers to the stock of produced means of production. It consists of machines, production plants, tools and equipments. The skilled workers handle the productive assets in such a manner that these not only enhance their productivity and but also lead to an efficient utilization of the physical capital. When the productivity increases, the pace of growth is automatically accelerated.  

2. Innovation of Skills: An educated person is more productive and skillful. He has the potential to develop new skills and innovative new techniques that can be more efficient and productive. Greater the number of skilled and trained personnel, greater will be probabilities of innovations.  

3. High Participation Rate and Equality: Human capital endowed with higher technical skills and innovating power is more productive and efficient. Higher the participation rate, higher is the degree of social and economic equality across the country.  Thus, we can conclude that human capital and economic growth goes hand in hand. Human capital formation accelerates the economic growth whereas economic growth also facilitates human capital formation.

Investment in human capital contributes growth by: 

1. Raisins productivity: 

The skilled and healthy labours make utilisation of the material inputs and capital effectively which increases productivity and ultimately faster the rate of growth.

2. Innovation :

An educated person has the ability to develop new skills and innovative new techniques that can be more efficient and productive and adds to economic growth.

3. Hish participation rate:

If more people become able to do work through education and health, it will increase the participation rate of people which will accelerate the process of economic growth and development