Human Capital Development in South Asia: Achievements, Prospects, and Policy Challenges

By Asian Development Bank

Human capital is an important factor for economic growth in South Asia. Between 1981 and 2010, human capital contributed about 22% of annual gross domestic product per worker growth in India. During the same period, it contributed around 21% in Bangladesh, and 16% in Sri Lanka. However, education and skills remain the binding constraint. Raising the quality of education and skills in South Asia's workforce can play a critical role in catching up to the level of development of the People's Republic of China, the Republic of Korea, and other successful Southeast Asian economies. This study reviews the development of human capital in South Asia and analyzes contributing factors to human development including policies and strategies that countries in South Asia follow.

• Language: English
• Publisher: Asian Development Bank
• Release date: Dec 1, 2017
• ISBN: 9789292610395

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HUMAN CAPITAL DEVELOPMENT IN SOUTH ASIA

ACHIEVEMENTS, PROSPECTS, AND POLICY CHALLENGES

Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO)

© 2017 Asian Development Bank

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Some rights reserved. Published in 2017.

ISBN 978-92-9261-038-8 (print), 978-92-9261-039-5 (electronic)

Publication Stock No. TCS179082

http://dx.doi.org/10.22617/TCS179082

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CONTENTS

TABLES, FIGURES, AND BOXES

Tables

Figures

BOXES

ACKNOWLEDGMENTS

This report was prepared by Jong-Wha Lee, Santosh Mehrotra, Ruth Francisco, and Dainn Wie for the Asian Development Bank’s technical assistance for Strengthening Knowledge-Driven Development in South Asia (TA-7997 REG).

Insightful comments and suggestions from Mohiuddin Alamgir, Natalie Chun, Eiko Ezawa, Rana Hasan, Jeffrey Liang, Brajesh Panth, Tania Rajadel, Sofia Shakil, Diwesh Sharan, and Emma Veve, especially during the initial stages of the research, greatly helped improve the report and are gratefully acknowledged. This report also benefited from the outstanding research support by Hanol Lee and Eunbi Song.

ABBREVIATIONS

EXECUTIVE SUMMARY

This analytical study reviews the development of human capital in countries in South Asia, particularly in terms of education and skills achievement. It also analyzes the factors contributing to the differences in human development arising from policies and strategies for economic and human development pursued by these countries. It then compares the progress in education and skills development in these countries with those in other Asian economies, including the People’s Republic of China, the Republic of Korea, and selected countries in Southeast Asia.

The expansion and upgrading of human capital play an important role in increasing employment, productivity, and income growth. However, in South Asia, education and skills remain the binding constraint. Raising the quality of education and skills of its workforce can play a critical role in catching up to the level of human and economic development of the People’s Republic of China, the Republic of Korea, and more successful Southeast Asian economies.

Human capital is an important factor of economic growth in South Asian economies, along with physical capital and technology. The estimates of the growth accounting between 1981 and 2010 suggest that human capital contributed directly as a productive input of about 22% of annual gross domestic product per worker growth in India. During the same period, it contributed around 21% in Bangladesh and 16% in Sri Lanka.

Education and skills of the labor force also play a very important role in promoting the rates of technological progress and innovation in an economy when it moves up the value chain transitioning from simple to more sophisticated high-value products. This study emphasizes the significant role of schooling and skills on labor productivity and wages.

Although South Asia has made a tremendous progress in expanding access to schooling, especially at the primary and secondary levels, over the past decade, there are still millions of children who remain out of school. A significant number of them will remain uneducated for the rest of their lives. Substantial school disparities in access, participation, and completion across gender, income, and social groups still remain in countries in South Asia.

A greater focus on boosting the quality of education at all levels is needed. The quality of teachers is still low, particularly in rural areas. A large share of primary school graduates in South Asia lack basic numeracy and literacy skills. Additionally, students have limited access to post-primary education. Higher public and private investments in education are necessary to upgrade quality and reduce disparities in learning outcomes in South Asia.

South Asia needs to keep up with the evolving skills requirement of the economic structural transformation process, as well as the rapidly growing youth workforce. A well-trained, relevant workforce is crucial to adequately support the economy and its transformation process. As these economies undergo early stages of structural transformation, they are now experiencing shortages of skilled workers.

Changes in demand and supply of skilled labor have also influenced wage inequality in South Asian economies. The expansion of skilled workers can match the pace of technological progress, it can also help reduce both skill–job mismatches and wage inequality.

In preparing the new entrants to the workforce, both capacity and quality constraints are needed to be addressed jointly by the public and private sectors in the region. Likewise, systemic problems are to be addressed to enable skills development institutions to upgrade the quality of skills they produce. More challenges specific to South Asia include rigidity in institutions, higher employment shares of the informal sector and small and medium-sized enterprises, gender inequality in labor market participation, and rapid increase in youth population.

Although skills development policies and technical and vocational education and training (TVET) systems in South Asia vary across countries, they share many weaknesses and problems, both in terms of access, inputs, and outputs. Girls, children from poor families, and rural residents are usually the ones that would benefit from vocational training. Teachers who are qualified and well-equipped to teach in TVET institutions are very limited in South Asia. Public resource allocations for skills training are inadequate, and there is very little private sector involvement. Due to the lack of involvement among potential employers, the TVET systems in South Asia rarely respond adequately to changes in the labor market. As a result, employability of graduates is low and widely varied.

The paper proposes nine policy actions toward developing a more productive, well-skilled, and relevant labor force for a modern, competitive economy:

Implement human capital development strategies that are coherent with national development policies, and relevant to changing demand. Mainstreaming education and skills development in national development policies is crucial to strengthen commitment and ensure that education and skills development could support economic development priorities toward overcoming challenges, including the changing industry demand and structural transformation, having high youth unemployment rates, growing youth population, and growing informal sector. Coordination of development policies on education and skills and training systems with other departments responsible for trade and industry development is important to ensure that they are coherent with the government’s economic and labor policy directions. Conscious efforts toward promoting noneducation policies that support greater human development, such as policies on improving early childhood health and nutrition, creating a favorable business environment, and improving national infrastructure, are also important.

Invest on upgrading and monitoring educational quality toward achieving better learning outcomes. Upgrading teacher quality is a key to improving learning outcomes in South Asia. This region needs well-trained and qualified teachers who are able to help students develop cognitive and noncognitive competencies. Teachers should be well-equipped to engage students in classroom discussions, develop critical thinking, and effectively handle weak learners. Periodic assessment of teachers’ capacity and student performance could help promote accountability among teachers toward addressing quality challenge. Strengthening school leadership and management in facilitating periodic assessments could help improve teacher quality. Aside from traditional monitoring and assessment channels, use of information and communication technology (ICT) can also be considered. With a transparent standard of recruitment and deployment system, long-term investment in teachers’ continuous professional development is necessary for building a quality teaching force.

Broaden access to quality education and skills development across gender, regions, and social groups to narrow disparities in school attainment and outcomes. Countries must provide quality education to all learners in South Asia through equitably deploying trained teachers across regions and communities to reduce income gaps. Use of ICT tools to facilitate classroom and distance learning is also a promising mechanism for tackling geographical disparities in the quality of education and skills learning. Education scholarships and stipends for students from socially or economically disadvantaged families could also help reduce educational gaps across social groups. Empowering local governments and rural communities to demand and support better learning outcomes using their resources can contribute to reducing geographical disparities. Promoting adult education and alternative learning experiences can especially help mothers and students in communities where learning outcomes and school participation are particularly low.

Improve secondary and tertiary education to match changing skill demand. Secondary and