Investment in human capital is recognised as fundamental for inclusive growth. Labour is poor people’s main asset, so good levels of health and education enable poor men and women both to participate in and profit from economic growth when it occurs (Duflo, 2011; CAFOD, 2014). Further, according to the broad definition of inclusive growth, good education and access to healthcare are seen as human development outcomes in themselves, as well as instruments for reducing income poverty (McKinley, 2010).
Empirically, there is a wealth of evidence which links spending on human capital to better economic outcomes for the poor. Econometric results suggest that boosting social sector spending by about 1 percent of GDP is associated with about 0.5 percentage point decline in the poverty rate (UNESCO, 2007; Hull, in OECD, 2009; Anand, Tulin and Kumar, 2014).
Practitioners should note that it is important for policies addressing human development to be implemented in line with other complementary policies, taking into account the connections between education and skills training and jobs in particular. While there are a range of sources which emphasise the importance of education and skills training in fostering pro-poor or inclusive growth, there is currently a gap in the literature on the relationship between healthcare and inclusive growth.
Annotated bibliography
Klump, R. and Cabrera, C. (2007). Education and Pro-Poor Growth. Frankfurt: KfW Bankengruppe.
This paper explores the role of education in facilitating pro-poor growth. On a micro level education improves the productivity and employment potential of poor people. It also affects their ability to participate in the political process which should increase government accountability and protect them from pro-rich policies. Expenditure on education is especially enhanced by complementary policies in healthcare and nutrition, as well as targeted interventions. At a macro level, most studies find a positive relationship between the initial level of education and subsequent economic growth. The authors conclude that unequal educational distributions lead to unequal income distributions, and that higher levels of human capital are positively related to the growth of poor people’s incomes. Investment in education in low and middle income countries should be directed towards primary education, as this leads to the highest returns for pro-poor growth.
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UNESCO. (2007). Investing in Skills for Prosperity. In Youth and Skills: Putting Education to Work (chapter 4). Paris: UNESCO.
What is the value of investing in skills for prosperity? This report notes that for $1 spent on education, $10-$15 dollars are generated in economic growth. The results of varying levels of investment in education in different countries are compared. The authors then note that despite the clear economic benefits of investing in skills, it is often neglected or low priority in many national development plans. To develop an effective skills strategy which aims to reach the most disadvantaged, a large number of providers need to be included. The report also highlights that skills development programmes are usually only relevant to jobs in the formal sectors and are not targeted towards the skills required in the informal sector, where a lot of employment is to be found in developing countries. Disadvantaged youth should also be included in the planning process for skills training as they have a deeper understanding then policymakers of the realities of their own lives. Finally, the report emphasises the importance of donors investing in education and skills, as primary and secondary education is being squeezed in many developing country government budgets.
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- Duflo, E. (2011). Balancing growth with equity: the view from Development. Paper presented at the Jackson Hole Symposium, Federal Reserve Bank of Kansas City, August 1.
See full text - CAFOD. (2014). What is “inclusive growth”? London: CAFOD
See full text - OECD. (2009). Promoting Pro-Poor Growth: Employment. Paris: OECD.
See full text - OECD. (2009). Promoting Pro-Poor Growth: Social Protection. Paris: OECD.
See full text - McKinley, T. (2010). Inclusive Growth Criteria and Indicators: An Inclusive Growth Index for Diagnosis of Country Progress. Mandaluyong City, Philippines: Asian Development Bank.
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