Sri Lanka : Investment in Human Capital

Abstract

Education is one of the most important
 determinants of economic performance in the modern world.
 This is true of both countries and individuals. The main
 characteristic which distinguishes between advanced
 economies, middle-income economies and low-income countries,
 is the knowledge content of their production activities and
 processes. Economic activities and products have become
 increasingly knowledge and skill-intensive in recent years.
 In addition, the importance of knowledge and skills is
 growing at an accelerating pace. Education is at the heart
 of human capital accumulation and economic growth. Education
 increases cognitive skills and soft skills of individuals.
 In addition, education improves the capacity of individuals
 to be trained for specific occupations and to acquire
 job-related skills. These effects of education enable
 individuals to accumulate human capital, improve labor
 productivity and increase life-cycle earnings. In the
 aggregate, this process generates economic growth.
 Investment in education produces a broad range of social
 benefits. Well-educated individuals, especially women, are
 better able to control their fertility and family health,
 resulting in reduced child, infant and maternal mortality,
 and higher life expectancy. Education also facilitates
 social mobility by creating opportunities for poor and
 disadvantaged groups to raise their economic and social
 status. A broad range of further externality benefits of
 education have been identified in the economic literature.
 These cover aspects of social well-being such as better
 political decision making, reduced incidence of crime, and
 higher quality public services. Education also produces
 inter-generational economic and social benefits: increased
 education in one generation improves schooling, labor
 productivity and income in the next. The public goods,
 informational imperfections and distributive justice aspects
 of education provide the economic justification for state
 investment in the education sector.