Current Trends in Human Capital Formation

Current Trends in Human Capital Formation

Ayansola Olatunji Ayandibu (University of Zululand, South Africa) and Lawrence Abiwu (University of KwaZulu-Natal, South Africa)
Copyright: © 2020 |Pages: 27
DOI: 10.4018/978-1-5225-9810-7.ch004
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This chapter explores the trends in human capital formation towards building sustainable organisations. A literature review approach was adopted to investigate HR practices which contribute to human capital formation, the contribution of human capital, as well as the barriers to human capital formation and theories of human capital formation. Human capital has been conceptualized as the collective knowledge that is embedded in the personnel, organisational routines, and network relationships of an organisation. It was found that many countries such as China, Russia, India, and Brazil are experiencing economic growth because of the investment in their human capital formation. The review of empirical studies showed that human capital has been considered as a firm's strategic resource for sustainable competitive advantage. This chapter submits that to prevent loss of human capital, it is important for organisations to create an environment and culture that will foster or encourage individual and organisational learning.
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Many countries such as China, Russia, India and Brazil are experiencing economic growth because of their investment in human capital, the most valuable asset of all resources (Crook, Todd, Combs, Woehr & Ketchen, 2011). The term human capital was originally coined by Adam Smith (1776) who argues that all human beings are similar by birth, but it is education, habits and training that make them different. Human capital is the stock of knowledge, competencies, skills and personality attributes required to produce economic value (Awan, 2012). Theory of human capital focuses mainly on the development of capabilities and skills of human beings, as a major part of economic development. Awan (2012) suggests that human capital formation can be enhanced through education, training and experience. Modern growth theory suggests that the accumulation of human capital is an important driver of economic growth. Scholars argue that China, Russia, India and Brazil have huge human resource bases. Their total population is approximately 41% of the world population, their combined area is 26% percent of the world area and their total Gross Domestic Product (GDP) is 18% of the world GDP. These countries have attracted the interest of scholars and the world at large because of their constant fast economic growth, especially since 2008, when advanced economies have been facing an economic downturn.

Further, Vladikov (2015) expresses a similar view, that, over the last 20 years, developing nations like Bulgaria, Romania and some other former USSR-states, which are successful in their accession to the economy of the European Union, have managed to evolve from command-driven to market-driven economies. According to Vladikov (2015), the transition was coupled with a fundamental change in comprehending how the education of one person affects his/her lifetime decisions and initiates the drive for a better standard of living through successful career advancement.

Esu (2012) points out that the ability of countries or organisations to develop their workforce largely depends on their sustained contribution to human capital formation. Lajili (2012) postulates that certain skills and training are required for growth driven environments. According to Lajili (2012), human capital is the combination of both the skills and knowledge acquired by individuals to increase their worth in the labour market and it remains crucial in developing any sector of the economy. Studies suggest that, while some advanced nations, such as China, Russia, India Brazil, East Asia and the United States, enjoy the benefits of education by promoting and producing the wealth needed to enable continued investments, regrettably, developing nations like Nigeria, Pakistan, Ghana, Kenya, and Zimbabwe are yet to enjoy such benefits (Akhtar, Renyong, Khaskheli & Ali, 2015; Igbokwe-Ibeto, Chukwuemeka & Okechukwu, 2014). Adedeji & Campbell (2013) suggest that, while developed economies are reaping the benefits of investing in education or human capital development, in contrast, developing nations have neither articulated a development strategy linking knowledge to economic growth nor built up their capacity to do so. For instance, in Pakistan, a study shows that the comparatively low investment in human capital has resulted in failure to translate economic growth into a satisfactory level of human development (Akhtar et al., 2015). Pakistan is at the lowest level of human development according to the United Nations Human Development report of 2014.

Key Terms in this Chapter

Performance: The accomplishment of a given task measured against preset known standards of accuracy, completeness, cost, and speed.

Brain Drain: The migration of intelligent, skilled, or capable professionals within a given field or geographic region to another country, economic sector, or field.

Training: The process whereby people acquire capabilities, skills, knowledge, and experiences to aid in the achievement of organisational goals.

Economic Growth: The measure of percent rate of increase in real gross domestic product (GDP) or real GDP.

Education: The process of providing the knowledge, skills, moral values and understanding required in the normal course of life.

Competitive advantage: An attribute which allows an organisation to outperform its rivals

Human Capital: The collective knowledge that is embedded in the personnel, organisational routines, and network relationships of an organisation.

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