On the Role of Human Capital in Economic Growth

At present, an active discussion is under way on development of an economic policy aimed at reduction of high dependence of the Russian economy on the situation on the global energy market and changing of the model of growth towards upgrading of its quality in order to ensure high rates of economic growth and their strength in the long-term prospect.


According to expert estimates, Russia, in all appearance, has already achieved  the potential level of GDP (that is, GDP with full utilization of the existing factors of production), and motivation of the domestic demand does  no longer permit to attain  high rates of economic growth even with oil prices going up as it was in the 2000–2007 period.1  

In the final report on the outputs of the expert work on topical issues of the social and economic strategy of Russia till 2020 (Strategy-2020: New Model of Growth – New Social Policy),  it is stated that a key mechanism of the new model of growth in Russia is investments in the human capital as a factor of competitive edge of the economy.  
It is to be noted that the idea of importance of human capital for economic growth was widely used in the theory of economic growth. So, it is pointed out in A Contribution to the Empirics of Economic Growth (Mankiw, Romer, Weil, 1992)2 that inter-country differences in growth rates can be better explained by the extended neoclassical Solow-model which takes into account   accumulation of both human and physical capital as compared to the model which takes into account accumulation of physical capital only (the extended model explains about 80% of inter-country differences in income). Also, the human capital is an important factor in the theory of endogenous growth3.

The idea of the role of the intellectual capital in development of the economy can be found, in particular, in Gregory Clark’s book – Good Bye, Poverty! – which is dedicated to the analysis of the economic history of the world. In his book, G. Clark pointed out that “the form of the production function in modern economies … is such that the relation of the physical capital to the output has not changed much since the days of the industrial revolution as a result of investments induced by the technical progress. Hence, growth in reserves of the physical capital was as fast as that in output. In such a case, the direct effect of the technical progress in combination with the indirect effect fr om those additional investments will consist in the fact that a 1% increase in efficiency will result in growth of 1.3% in the output”4. So, as stated by G. Clark investments in intellectual capital as a factor of growth in efficiency are the only explanation of economic growth; growth in the volume of knowledge was the main factor behind the industrial revolution in Great Britain5.

So, on the basis of the above it can be concluded that investments in the human capital in Russia, namely, development of the social sphere are an important factor behind sustained balanced economic growth in the long-term prospect and, for that reason,  such investments should be a priority line of the economic policy in the short-term prospect.

М.V. Kazakova, PhD (Economics), Head of the Economic Development Department

1 See, for instance, The Russian Economy in 2011. The Trends and Prospects. (Issue 33) - Мoscow.: The Gaidar Institute, 2012, pp. 17-27 (www.iep.ru); http://www.iep.ru/ru/kommentarii/rossiya-dostigla-urovnya-potencialnogo-vvp.html.
 2 Mankiw, N. Gregory, Romer, David, and Weil, David N. (1992), "A Contribution to the Empirics of Economic Growth", Quarterly Journal of Economics, 107(2): 407–437, May.
 3 See, for instance, Lucas Jr., Robert E. (1988), "On The Mechanics of Economic Development", Journal of Monetary Economics, 22(3):3-42, June; Rebelo, Sergio. (1991), "Long-Run Policy Analysis and Long-Run Growth", Journal of Political Economy, 99(3): 500–521, June; Romer, Paul M. (1986), "Increasing Returns and Long-run Growth", Journal of Political Economy, 94(5): 1002–1037, October и др.
 4 G. Clark. Good Bye, Poverty! The Short Economic History of the World. Translation from English by N. Edelman. – Мoscow.: Publishing Hhouse of the Gaidar Institute, 2012. p. 291.
5 It is interesting that  according to the author the social evolution was at the heart of intellectual capital growth: “it was different people who managed to achieve economic success… those people were enduring and they were able to wait for the sake of higher level of consumption in future, they were prepared to work much and carry out formal settlements in the world wh ere different types of input and output data prevailed …  As it can be seen in terms of Great Britain, starting from at least the Middle Ages those people who were successful within the frameworks of that economic system --  they accumulated assets, acquired skills and became literate – increased their  abundance in the next generation”. (ibid. p. 266).