Developing countries experiencing a vibrant economic growth need to realize the significance of the size and quality of human skills for achieving sustained economic growth and reducing rising poverty.
Most of the low-income developing countries where incidence of poverty is highest, have failed to make a headway towards achieving the ‘millennium goal’ of halving the size of their impoverished population by 2015.
In South Asia, India has made an all-out effort to develop its human capital, resulting in sustained high economic growth rate.
India is now in limelight for having increased the access to education enormously. Greater efforts are being put in towards providing health facilities and also government is conscious of the fact that all policies relating to both economic and social sector need to be gender sensitized.
Accordingly, India is heading fast towards achieving all committed ‘millennium goals’ within a specified period.
Unfortunately, Pakistan having more or less similarity to India regarding socio-economic status until mid-90s has failed to make a mark at this count despite achieving satisfactory economic growth rate in recent years. This is mainly due to lack of good governance in all tiers of government and total absence of proper monitoring and supervision of development activities of health and education sector.
In East Asia, China has been found fast approaching the committed target of alleviating poverty, made possible by rapid economic growth sustained for the last two decades, which, in turn, enabled China to make large outlays for speedy enrichment and development of their human resources.
Despite high economic growth rate, Pakistan is faced with rising fiscal and trade deficit. Under given conditions, increasing outlays on social sector, particularly on education and health, becomes difficult. With a major earthquake, the Public Sector Development Programme will have to be curtailed for reallocating funds for reconstruction of the affected areas, as loans and donations will take time to be realized.
Despite these constraints, development of human resources is an indispensable need for Pakistan. Better health status and quality education at all levels and tertiary education in particular has been established as the most important tool for sustaining the productivity growth, which, in turn, determines the overall economic growth trend. As such, there is urgent need to make higher social outlays particularly for education and health.
Despite financial crunch, the government has resolved to allocate four per cent of GDP for education. This is not only for revamping and restoring infrastructures relating to education in earthquake affected areas, but also to accelerate growth of education of all levels. The federal government has already announced an allocation of Rs100 billion, which is to be utilized in next five years and out of which Rs20 billion would be available in 2006 exclusively for educational reforms.
Health sector, which is equally important for achieving sustained growth of human capital, continues to be overlooked by the establishment. Along with education, health facilities need to be developed to have healthy and efficient workforce capable of devoting more time to productive activities. Variation in wages is not only based on workers’ status of education but also on health factor.
An IMF study, in 2004 reveals that in both industrial and developing countries, almost 1/3rd of annual growth of GDP can be attributed to health capital, and an increase in life expectancy of one year is associated with an increase in the long-run growth rate by four percentage points. But at the same time, it is a common experience with low income developing countries that higher allocations for health and education, at any point of time, results in further increase in fiscal deficits, thus totally disturbing projections regarding growth rate.
Lack of good governance, common feature of these countries, is another contributing factor for maladjustment impacting macroeconomic stability. Poorly targeted outlays on social sector specially on education also obstructs the path of long-term economic stability. Unfortunately, Pakistan is faced with a similar situation.
Lack of accountability and absence of proper monitoring system emanating from poor governance have made the corruption and other unethical practices crept into education system at all tiers. Hence, the existence of ghost schools is a common phenomenon.
In almost all the low-income developing countries, little attention is paid for ensuring interaction of various social spending. Sizable allocations for promotion of education among students are not accompanied by health care facilities, particularly for those from financially disadvantaged families. Outlays on education have failed to develop desired education capital.
The IMF study also revealed that the investment in health and education with proper monitoring and accountability system in place yields the largest return in low-income countries. It results in giving high enrolment rate both at primary and secondary education level.
The findings of the study based on panel data set for 120 developing countries established that education spending of one percentage point of GDP gives an increase of six percentage points in composite enrolment rate within a five year period and of another three percentage points in the following five years period. It was also deduced from the study that education and health capital has strong links as health capital has been found contributing to the accumulation of educational capital with an elasticity of about 1.3. In other words an increase of 10 per cent in health capital would raise educational capital by 13 per cent.
Hence in low income developing countries, good health conditions help promote better educational achievements to a significant extent. The study also revealed that improvement in gender equality improves health and educational capital through higher access to basic services. The data indicates that one percentage point increase in the female share of enrolled students gives a two-percentage point increase in composite enrolment rate.
Poor governance reduces the economic growth rate mainly through its impact on human capital and investment. Countries under poor governance have been found to have growth of about 1.6 percentage point lower per year than other countries. Similarly, countries with poor governance have been found to have investment ratio to their GDP lower by two per cent.
In fact, governance is a powerful tool to improve social indicators and economic growth rate of a country. Improvement in governance or in other words increasing sense of accountability and curbing of corruption have visible repercussions on both social sector and economy. Corruption free health and education sector have direct bearings on child mortality rate, composite enrolment rate and per capita GDP growth rate of the extent, which is outcome of increased spending on social sector as a whole.
The study indicates that an increase of one percentage point of GDP spending on education is associated with three more years of schooling on average and an increase in annual growth of 1.5 of GDP in 15 years, which can be translated into a cumulative reduction of the initial poverty head count ratio by about 17 per cent.
Similarly, an increase in health spending of one percentage point of GDP is associated with a ½ percentage point increase in survival rate of children under five and a rise of ½ percentage point increase in annual per capita GDP growth. This in turn results in reduction of initial poverty head count ratio by about 12 per cent.
Among developing countries, once facing acute fiscal and trade deficit and now categorized as ‘high income developing countries’ were upgraded just because they increased social sector spending, which gave them highly skilled and energetic workforce, capable of making use of new technologies in all spheres of economic life. It means corrective measures through social sector spending can bring additional lagged positive effects than what is achieved through monetary and fiscal measures.
Developing countries experiencing a vibrant economic growth need to realize the significance of the size and quality of human skills for achieving sustained economic growth and reducing rising poverty.
