Human capital includes the education, skills and health of workers. An economy with poor human capital will likely suffer lower economic growth and development because:
1) Low Labour Productivity.
A low level of education means workers have limited skills and, due to illiteracy, find it difficult to learn new skills. So workers are unproductive and the economy suffers because productivity, the PPF and output are constrained.
2) Repelled MNCs.
If a country’s workers are unproductive then domestic firms may not invest and MNCs may be discouraged from entering the country because they face higher costs associated with educating and training workers. So investment is constrained and the potential for economic growth and development is constrained.
With little education people may not be able to look after themselves and their families properly so living standards are lower.
4) Poor Education Persists.
If parents have a poor education then they may not pass on many skills to their children, so the economy’s population may remain poorly educated even in the long-run.
However, poor human capital may not be a major constraint on development because: – Agriculture and industry may not require that much education. Workers may not need an education to work productively on farms or to operate machinery in industry. Low education may in fact be advantageous in a monotonous job. – MNCs may be attracted to LDCs for other reasons like weaker environmental laws. Also, MNCs may just employ their own HIC labour anyway. – Maybe other factors are more important development constraints. For example, government corruption could mean the LDC’s funds are never used to develop the economy.