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