AN ASSESSMENT ON THE IMPORTANCE OF HUMAN CAPITAL IN ECONOMIC GROWTH

Even though the emergence of the human capital theory was shaped in the context of microeconomics, it was applied to macroeconomics eventually by the implementation of the microeconomic production function at the national or economy-wide level. There are several economic growth models introduced in the literature on this matter over the years by placing aggregate production function in the center of their models, which lay the foundation of studies focusing on economic development. However, development of ‘new growth theory’ particularly draw attention to the relationship between human capital and growth that is followed by the efforts aiming to bring an explanation to the differences of growth across countries by considering several possible variables of growth. New growth theory attempted to bring an explanation to the process of economic growth in the long term through endogenous forces such as human capital, knowledge and information technology which also constituted the foundation of today’s modern economies. Economic growth has been linked to an increase in knowledge, quality, and diversity of human capital rather than just a cumulative increase in the labor force. Consequently, human capital has been recognized as one of the significant factors in the process of economic growth in the literature, considering its positive contribution to creating more output in growth. However, it is noteworthy to state that literature on this topic seems to constitute some weaknesses methodologically and conceptually as well as empirical researches due to revealing reverse results. In this context, this paper aims to conduct a literature review to develop an understanding of the human capital concept and its importance in economic growth. Accordingly, the concepts of human capital and economic growth are analyzed theoretically by showing findings of some research in the literature on the relationship between both variables which indicated that human capital could have a significant positive impact on economic growth. As of theoretical character of the study, the paper is based on the systematic review of the literature on theories of economic growth by making use of secondary data like journals, papers, websites and various magazines as the primary sources to bring an explanation to the correlation between both variables.