Cover page Course code: CED 6070 Tutor: Mahama Samir Bandaogo Assignment: paper 1 Title of the assignment: an issue of importance in the Economics of Human Capital 
 Candidate: Jie He Date: 13.Feb.2016 The paper will explore the relationship between human capital and development, and the impact of urbanization and rural-urban migration on human capital accumulation and analyze how it affects development. Human capital, such as training and education, refers to the productive investment in people (Todaro and Smith, 2011). As stated by Todaro and Smith (2011), lower-level human capital is one of the significant features of the developing countries, because human capital plays a significant role in economic growth, and meanwhile economic growth is the main index of economic development. In other words, lower-level human capital could be the reason why a country is less developed. The features of developing countries also include large rural populations and fast rural-to-urban migration. As pointed out by Ravallionm, Chen, and Sangraula (2007), urbanization could significantly reduce absolute poverty, another feature of the developing country. Absolute poverty is defined as a phenomenon of being unable or barely to meet the basic needs of food, health care, and shelter (Todaro and Smith, 2011). Finally, this paper will research the relationship between urbanization and human capital accumulation and verify the effect of them on economic development. Firstly, it is essential to know the direct impact of higher human capital on economic growth, so as to explain how human capital affects the economic development. As is well known, better human skills could enhance the development of a country by increasing output per person. Weresa (2013) also stated that with the rapid progress of globalization, people together with their knowledge and creativity will become the vital elements of a country’s competition ability. Nowadays, human capital and investment in human capital are becoming increasingly crucial for a country to compete over the world. For example, (Weresa, 2013) Indian have spent billions on literacy programs in recent decades. As indicated by the results, literacy truly poses a positive impact on the total factor productivity growth of manufacturing sector based on the literacy programs (the numerical data and analysis will be provided in paper 2). The growth in manufacturing sector has certainly stimulated the economic growth in India. By contrast, the developed countries generally possess higher level of human capital, which may explain why they have higher output per person. Apart from the direct effect of human capital on economic growth, the increase in human capital can accelerate economic development in some other aspects. Notably, the education and health, as the fundamental goal of development, play the main role in human capital. Regarding the education, it can stimulate development not only in enhancement of TFP but also in some other aspects. For instance, education of girls is sometimes more cost-effective development investment compared to boys. Basically, the rate of return on women’s education is higher than that on men’s because it not only increases their productivity in the workplace but also results in greater child health. Dr. Martin (2014) pointed out that the cost-efficient intervention (e.g. home visit occurring immediately after birth) plays an effective role in saving the lives of newborn. Through continuing education, the mothers can obtain more information concerning the prevention of common diseases (e.g. AIDS and malaria), which will also allow the nations to gain better child health standard. Furthermore, the original findings are verified by thirty-year study on the data gathered throughout Latin America, Asia, and Africa (Caldwell, 1979). Namely, the schooling of women was closely related to the decrease of child mortality in the developing countries (LDCs) during the latter half of the 20th century. As confirmed by the evidence, a mother’s education level has connection with her children’s life level under different economic occasions. It is commonly believed that female schooling refers to the decisive factor of fertility (McCrary and Royer, 2011). Woman with higher education may have increased permanent income, give birth to higher-quality children, and make better fertility choices. According to the study of McCrary and Royer (2011), females with lower education level are equally probably to become mothers. After analyzing the impact of human capital on development, this paper will discuss about the influence of urbanization on development. As stated by Todaro and Smith (2011), the transformation from primary sector to secondary and tertiary industry is one of the signs of economic development. Look at the data from World Data Sheet (2009) below. Table 1:The urban population in the developed countries and the developing regions Region Population, millions, 2009 Urban share % World 6,810 50 More developed countries 1,232 75 Less developed countries 5,578 44 Sub-Saharan Africa 836 35 Northern Africa 205 50 Latin America and the Caribbean 580 77 Western Asia 231 64 South-central Asia 1,726 31 Southeast Asia 597 43 East Asia 1,564 51 Eastern Europe 295 69 Source: Population Reference Bureau, 2009 World Data Sheet. It is obviously evidenced that the developing countries have a much higher proportion of people who live in rural areas. For examples, in the United Kingdom and the United States, only 1% of their GDP is gained from agriculture sector and almost 77% GDP is captured from the third industry. By contrast, the proportion of Thailand is 12% and 44%, respectively (World Bank, 2010). As illustrated by the research of Todaro and Smith (2011), the developed countries with higher share of urban population usually have higher per capital income. The reason why urbanization can bring about development is because of agglomeration economies. As the cost superiorities to customers and producers from villages and urban places, the agglomeration economy generally takes the form of localization economy and urbanization economy. Soo Lim (2016) holds the same opinion that the urbanization could bring agglomeration economies and consequently make a country become developed. At present, lots of developing economies are going through the course of urbanization. Meanwhile, numerous typical facts have been provided by the empirical researches of migration. One of them is that education has tendency to improve migration. Here comes a question: why is migration more likely for people with higher education? According to neoclassical framework, the net of migrant’s prospective earnings in the village and city as well as the net of migration’s direct expense is totally positive. In most of developed countries’ countryside areas, the higher-education returns are usually low. Hence, countryside inhabitants will probably gain the monetary rewards of higher education by migrating to the urban areas. There is another (Lucas, 2004) similar view. Namely, the cities are regions for people to gather human capital, and the urban benefits tend to grow by addition. Moreover, the wage premium of cities refers to an effect of wage growth instead of an effect of wage level (Glaeser and Mare, 2001). Accordingly, the positive impact of education on migration will probably be demonstrated by greater income increase degree of people with higher education in the cities. The researchers may compare returns to education between rural and urban regions, so as to study these explanations’ validity. Notably, higher income increase rate in cities would support the illustrations. For instance, in Indonesia, the actual income growth of male university graduates in cities is higher than that in countryside areas from 2000 to 2007 (Table 2). Particularly, the former’s average income increase is nearly 40 percent higher than the latter for men. Also, it is 15 percentage points higher for women employees who receive university education in the cities. Table 2: Mean real income and income growth of males and females (2000 and 2007) Real income % change 00-07 Year Region Gender College graduates 2007 Urban Male 8501 69% 2000 5019 2007 Rural 5622 30% 2000 4327 2007 Urban Female 5676 62% 2000 3514 2007 Rural 4062 46% 2000 2775 Source: IFLS 3&4, Unit: thousand Rupiah The results of this study support the conjecture that there are greater economic gains from migration for more educated people. Particularly this study finds significantly larger income gains for more educated groups by comparing migrants’ post wages with their counterfactual wages in rural areas. Also, the results of this study support the view that cities are places for accumulating human capital. To sum up, human capital can be utilized as an important index to assess whether a region is developed or not. It is worth mentioning that higher-level human capital is conductive to promoting the development in education, health, and productivity. There is a complementary relationship between health care and education, which can help produce greater human capital. Regarding the urbanization, a migration that congregates lots of “best” human capital is not only the key sign and the major measure of economic growth. Reference Caldwell JC. (1979). Education as a factor in mortality decline: an examination of Nigerian data. Popul Stud 1979;33;395-413 Glaeser, E.I. and Mare, D.C. (2001)., Cities and skills. Journal of Labor Economics, Vol. 19, no.2 pp.316-342 Lucas, R.R. (2004)., “Life earnings and rural-urban migration, Jurnal of Political Economy, Vol. 112 No. 1, Pp. 29 Martin, JAR., 2014, An index for quantifying female education and child health in emerging economies. University of Granada. McCrary, J. and Heather, R. 2011. American Economic Review: The effect of female education on fertility and infant health: evidence from school entry policies using exact date of birth; Nashville 101.1 (Feb 2011): 158-195. Ravallin, M., Chen, S. and Sangraula, P. (2007). New Evidence on the Urbanization of Global Poverty. Washington, DC. World Bank. Soo Lim, S. (2016), Urbanization and Returns to Human Capital Investment. Journal of Economics, Business, and Management, Volume (4), No. 2. Pp.144.eoa. Todaro, M. P. and Smith S. C., (2011). Economic Development (11th Edition) (The Pearson Series in Economics). 11 Edition. Prentice Hall. Weresa, M.A. (2013). Innovation, Human Capital and Trade competitiveness: How are they connected and why they matter?(Innovation, Technology and Knowledge anagement). 2014 Edition. Springer. World Bank, World Development Indicators, 2010 (Washington, D.C.: World Bank, 2010), table 2.3 and 4.2.