Determinants of human capital formation and economic growth of African countries

Rapid economic growth and improving living standards have benefited almost all regions of the world since the industrial revolution. Africa stands out as one regional exception. While several factors such as civil wars and rampant corruption have been associated with poor economic performance of the African region in the international community, the main focus of this research is to explore the role that human capital should play in improving the region's economic productivity. The study identifies the two-way links between human resource development produced by formal schooling and economic growth, measured in per capita terms, and between investment in physical capital and growth. It then estimates this three-equation structural system by two stage least squares (2SLS). The study concludes that the sources of labor productivity growth in the medium term in African nations are high investment in physical capital and in human capital. This is consistent with the hypothesis that both human and physical capital investments are necessary if Africa is to attain industrial development. The hypothesis that per capita growth is a determinant in turn of investment in education is consistent with the ordinary least squares and 2SLS estimates, implying a two-way causal flow. Also confirmed is the hypothesis that human resource development is a determinant of investment in physical capital, which contributes significantly to per capita growth in the next round.