Returns To Human Capital Investment And Economic Development

Late-development advantage means that the poorer countries have important advantage that the first pioneers along the path of industrilization did not, which means that relative backwardness itself may aid development. This paper do research in late-development advantage in human capital, which we reckon that it is the foundation of the national wealth. Late-development advantage of human capital means that relative backwardness itself may creat learning opportunities for less developed countries. We will prove that human capital returns are decreasing just like physical capital, along with the increase of human capital, human capital returns will decrease. Hence, the returns of human capital in late-development countries are higher than in developed countries. Psacharopoulos (1994) shows that the social returns of education in low income countries, middle-low income countries and high income countries are 0.152,0.134 and 0.103 respectively, and the private returns are 0.193,0.187 and 0.128 respectively, the returns of education are decreasing along with income. Although, in recent years, some researcher start to doubt this conclusion that human capital returns are decreasing, they argue that it may be increase instead(See e.g., Zhang 2006, Li and Li 1994, Nai 2000, et al).There is a inconformity between the empirical analysis and the traditional assumption, and we want to kown that whether is the empitical anaysis is wrong or the traditional assumption, this question is very difficlut to answer, because the relationship between them and the reasons are complicated. This paper give a prove that there is a minimum investment scale in both human capital and physical capial, any investment below this scale is noneffective. It is because of this minimum investment scale, the poor countries do not have enough capital to invest and cann't borrow enough money, so the investment on education in poor countries are noneffective, this misleading the researchers and make them give a wrong conclusion that the human capital returns are increasing. Insteadly, this paper try to give a system analysis about the returns of human capital, our positive analysis shows that the human capital returns are decreasing wehther through the international data analysis or the chinese data analysis, thus the late-development advantage of human capital do exist. The empirical analysis, which argue that the human capital returns are increasing, ignored the influence of education on population migration, which will affect the income distribution and the regional economic difference, and finally let them make a wrong conclusion.