Human Capital in Latin American Economic Development Term Paper

Human Capital in Latin American Economic Development

HUMAN CAPITAL IN LATIN AMERICAN ECONOMIC Developtment

The concern for the economic development in the developing countries has been an issue for several decades. Many policy makers around the globe in various developing countries have formulated development strategies for their economies in consultation with the developed countries and international bodies. The central focus of all the policies have been on the development and investment on the following areas which will lead to the economic strengthening of the developing economies.

a) Investment in human and physical capital

b) Technological change transfers

c) Assistance from foreign development

d) Private capital flow

e) Creative investments which lead to increased return on investments

f) Investment in research and development.

g) Encouraging the environment of entrepreneurship

h) Institutional framework of the economy

Positive contribution of political freedom and infrastructure in structuring economic development framework.

Economic Outlook of Latin American Countries

The analysis on the emerging economies by 2050 has identified some countries as the largest economies of the world and they are China, United States, India, Brazil and Mexico. The Latin American countries like Argentina, Chile, Uruguay, Mexico and Panama have per capital GDP greater than the China in the year 2009. Despite of this enormous growth in the economic indicator, Latin American countries have been faced with the challenge of unequal distribution of income. This unequal distribution of income has been a major source of low standard of living of its population in major cities of the region as it fuels poverty and reduced the ability of an economy to grow at its optimum level. Income inequality is not new to the Latin American economic system. It has been generated from years and has been transferred through generations. The major cause of this transmission mechanism of income inequality is political system's ability and capacity to give room to the socio-economic differentiation. This differentiation have been benefitting the most influential groups of the society thus pressurizing and weakening the least favored and less influential group. The differentiation based on the caste, race, ethnicity, locality and gender have great contribution towards the income, wealth, investment and political considerations. The summary of socio-economic performance based on the United Nations development report 2007 the performance of some of the high, medium and low performing countries of the Latin America are given in the table below that covers the economic parameters of growth evaluation like GDP calculated on purchasing power parity, income equality through gini index, poverty index and human development index. Countries that turn out to be highest in the unequal income distribution according to the UN development report in 2007 were found to be Haiti, Colombia, Bolivia, Honduras, Brazil and Panama.

Summary of Socio-economic performance indicators for Latin American countries-

UN development report

Country

GDP (PPP)

Per capita estimates

2010 billion USD

Income Equality

2000-2010

Gini Index

Human Develop

2010

Poverty Index

2009

HPI %

Argentina

15,603

48.8

0.775

3.7

Bolivia

4,584

57.2

0.643

11.6

Brazil

11,289

55.0

0.699

8.7

Colombia

9,445

58.5

0.689

7.6

Haiti

1,122

59.5

0.404

31.5

Honduras

4,405

55.3

0.604

13.7

Panama

12,398

54.9

0.755

6.7

Mexico

14,266

51.6

0.750

5.9

Paraguay

4,915

53.2

0.640

10.5

Venezuela

11,889

43.4

0.696

6.6

(Source: (Haar, Jerry & Price, n.d.)

Economic Development in Latin America

The economic development of Latin America is faced with two key economic challenges which are likely to have increased rate of sustainable economic growth and to reduce instability of growth. The increased rate of sustainable economic growth can be achieved by improving upon the economic indicators of high GDP growth, equal distribution of income and resources, better creation of employment opportunities, favorable investment climate in the region, balanced position of countries imports and exports and reducing the inflationary pressures in an economy. However, in the light of second type of challenge faced by the Latin American economies i.e. To reduce instability of growth is of considerable importance as the countries can't afford to have economic growth today at the cost of downturn economy tomorrow. The Managing Director, International Monetary Fund, Dominique Strauss-Kahn have identified this sustainable economic growth for the upcoming years as 'managing good times' and have exemplified it as Canadian economy which is maintaining sound standards on managing the good times but is still a challenge for many countries like Latin America and others around the globe.

While considering Latin America for managing good times and coping with the challenge of reduce instability or vulnerability in an economy three pathways to success have been identified.First is the focus on sound economic policies. Countries that have managed their survival during the regime of economic and financial crisis and were able to significantly rise in the following years of crisis were found to be the one who had strong economic policies governing their growth under vulnerable climate. Monetary and fiscal authoritarian's collaborative work is required in achieving the targets of low inflation and public debts, introduction of the exchange rate flexibility that can benefit in reducing the balance of deficit and increasing foreign reserves, control of credit creation in an economy and thus improving the living standards of its population. This all is materialized through strong institutional framework in policy formulation and positive contribution of the government and private enterprise in its growth. Government initiatives to control the monetary parameters through expenditure and revenue formulation of fiscal policy have to be friendly on the people's income including disposal income, wealth, property and investment.

Second focus is on the financial stability. The effect of globalization to the large extend had exposed economy to volatility in the capital structure and investment flow in both public and private sector. As the local enterprises have the benefits of share of foreign investments in their capital structure and the economy is benefited with more foreign direct investments this on the other hand has welcomed the challenge of credit creation that could lead to problems like credit bubbles. To address this issue strong regulatory supervision and institutional policy formulation is required where private sectors have been empowered to take proactive measures that indirectly affect the macro-economic variables. Prudential measures in the process of credit creation by the financial sector and its sound management is critical in its respect. Regulatory framework should be a guide to all the players of financial institutions in the distribution and management of credit and other financial facility in an economy. The monetary and fiscal authoritarian in an economy can control the supply and demand of credit in an economy through their tools of open market operation, changing reserve requirements, changes in marginal requirements, credit rationing/credit ceiling and tax structure in an economy.

Third focus is on the diversified economy. The advent of globalization in addition to their economic and financial implications in an economy has a contribution in the creation of diversified economic structure and there is no single formula to cope with it. Diversity instead of consider as hindrance to the growth should be taken up as an opportunity in searching for new areas of economic growth and development. People belonging to cultures, countries, race, backgrounds and educational profiles bring in new skills, talents and intellectual capital in an economy. This calls for a better human capital development within the countries. Business opportunities increases and more areas of employments are discovered. The overall governance of the private enterprises in this respect needs to be strong and motivational.

Although poverty and income inequality remains a challenge for the Latin American countries, the attention is required in the areas of improvement for educational development, provision of healthcare, better housing and sanity services and strengthening of the public infrastructure. For this reason, government expenditures should not to be focused on the majority influential parties but on the needed sector of the economy.

Building Human capital for economic development

Defining Human Capital

The Nobel-Prize winner economist, Theodore W. Shultz has used the word "Human Capital for the first time in 1961 in an article published in American Economic Review titled "Investment in Human Capital." Since then great amount of literature have been build up to the concept of human capital. By the initial economist it was considered as the skills, knowledge and experience. Later on by the management gurus the term "skilled and educated people" was added to the definition. The advance concept of human capital is on the value addition made by human. The value is measured by the person's ability to perform well and his/her behavior towards work. Performance is thus the combination of person's ability, behavior, skills, knowledge and the amount of time invested in performing the job. Companies are therefore investing to attract, develop and retain people to add value to their firm. On the other hand, people are educating themselves, adding knowledge and skills to create competitive advantage to the firm. In the business world it is termed as ROI or return on.....