How low hu­man cap­i­tal can limit pro­duc­tiv­ity im­prove­ments. Ex­am­ples from Turkey and Peru

Financial Nigeria Magazine - - Contents -

Com­par­ing two mid­dle-in­come coun­tries is not un­usual, but two that are ge­o­graph­i­cally far and are ap­par­ently dif­fer­ent is less com­mon. How­ever, both Turkey and Peru have had the high­est growth in their re­spec­tive re­gions in re­cent years, as­pire to be­come high-in­come economies in the next decade, de­pend on trade.

Both coun­tries face down­side risks if struc­tural changes – in the ed­u­ca­tion and train­ing sys­tem, and the econ­omy more broadly – are not made to en­sure that con­tri­bu­tions to eco­nomic growth come from im­prove­ments in pro­duc­tiv­ity. Both coun­tries rec­og­nize there is a large gap be­tween their pro­duc­tiv­ity lev­els and the global pro­duc­tiv­ity fron­tier, and both have grow­ing pop­u­la­tions that are not ad­e­quately equipped to meet labour mar­ket needs, with av­er­age pro­duc­tiv­ity lev­els. Given these (sim­i­lar) chal­lenges, both coun­tries have as their de­vel­op­ment goal, cen­tral to their de­vel­op­ment agenda, to im­prove pro­duc­tiv­ity to con­tinue grow­ing in a sus­tain­able man­ner.

Why is pro­duc­tiv­ity im­por­tant now? Turkey and Peru would like to ben­e­fit on­go­ing de­mo­graphic changes. Both coun­tries see it as an op­por­tu­nity to ac­cel­er­ate growth. But they rec­og­nize that to ben­e­fit from hav­ing a young, ac­tive and highly pro­duc­tive pop­u­la­tion cer­tain re­forms and ac­tiv­i­ties are needed. Among them is the im­prove­ment of hu­man cap­i­tal. By im­prov­ing the ed­u­ca­tion, skills and abil­i­ties of work­ers, these coun­tries can po­ten­tially im­prove the pro­duc­tiv­ity of their work­ers and their econ­omy.

A re­cent ar­ti­cle that ex­plores the link be­tween hu­man cap­i­tal and eco­nomic growth finds that hu­man cap­i­tal can ex­plain be­tween 10% and 30% of the dif­fer­ences in per capita in­come be­tween coun­tries. And the pos­i­tive ef­fects of hu­man cap­i­tal gains are per­sis­tent over time which em­pha­sizes its im­por­tance for gov­ern­ments and so­ci­eties to im­prove peo­ples’ qual­ity of life per­ma­nently

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