Human Capital Contributions to Economic Growth in India: An Aggregate Production Function Analysis (Contributed Article‪)‬

About the Study Traditional economic theory generally viewed capital in physical terms only. Economists during the late 1950's, based on aggregate production function, found that the standard measures of simple labour and physical capital were incapable of explaining adequately the rapid post-War growth. Speculations on what were missing were diverse. Some argued that the principal explanation lays in the lack of appropriate adjustments for improvement in the quality of physical capital and the embodiment of technical progress in that capital. Others suggested that the most important omission pertains to the organizational advance or a vaguely specified "human factor". The "residual" of unexplained growth was at first ascribed to technology (Solow 1957). But later, the "residual" was defined to include improvements in the quality of capital (Denison 1962, Griliches & Jorgenson 1964) and the investment in human beings (Schultz 1959, 1961). Human capital is formed from investment in skills and education. Although Adam Smith did not specifically use the term "human capital", he included in the category of fixed capital the skills and useful abilities of human beings. Marshall provided an elaborate account of estimating returns to human capital. But the contribution of Nobel laureate Theodore Schultz (1961) marks the beginning of the formal induction of human capital into the main stream of economic analysis. He stated '...investment in human capital accounts for most of the impressive rise in real earnings per worker.' The best-known application of the idea of "human capital" in economics is that of Mincer and Becker. Becker (1962) built on Schultz's work by developing a broader theory of human capital. In the early years of economics of education, controversy prevailed on the 'flower and seed' or the 'chicken and egg' relationship between education and economic growth (Vaizey 1962).