Human Capital Development in the People's Republic of China and India: Achievements, Prospects, and Policy Challenges

HUMAN CAPITAL DEVELOPMENT

IN THE PEOPLE’S REPUBLIC OF CHINA AND INDIA: ACHIEVEMENTS, PROSPECTS, AND POLICY CHALLENGES

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Asian Development Bank.

Human capital development in the People’s Republic of China and India: Achievements, prospects, and policy challenges

Mandaluyong City, Philippines: Asian Development Bank, 2015.

1. Human capital development.      2. People’s Republic of China.      3. India.      I. Asian Development Bank.

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CONTENTS

Tables, Boxes, and Figures

Foreword

Low level of education and skills is one of the major constraints to the overall economic development in South Asia and many other regions. The midterm review of the Strategy 2020 of ADB recognizes the need for investments in education and vocational training toward enhancing the productivity, employability, and innovativeness of the workforce in the developing member countries (DMCs).

The study on Human Capital Development in the People’s Republic of China and India: Achievements, Prospects, and Policy Challenges is very timely in drawing lessons from two of the largest countries in the world that are undergoing major economic and social transformations, attributed to the expansion and effective utilization of human resources as well as market reform and outward-oriented policies. These lessons have huge policy implications in other DMCs. The People’s Republic of China (PRC) after having experienced large-scale expansion and productive utilization of its young population has to now witness the gradual aging of its population, while India will continue to experience a growth in its young population in the next 2–3 decades before its population starts to age.

Both India and the PRC are faced with disparities in educational achievements and opportunities, and in the quality of educational outcomes despite the high rate of economic growth. These two countries are promoting the employability of their young population amid growing domestic and global competition, rapid technological changes, and unprecedented labor mobility.

This study highlights new estimates of human capital contribution to growth in the gross domestic product in the PRC and India for the period 1960-2010. It also analyzes how aggregate growth in labor productivity is linked to the differential growth of labor productivity in individual sectors and the reallocation of labor between sectors. The PRC apart from seeing improved labor productivity in individual sectors witnessed a shift to manufacturing and services sectors contributing to labor productivity. On the contrary, the services sector in India played a more dominant role than the manufacturing sector in contributing to the overall economic growth, in terms of both sectoral productivity and structural change effects. Both these countries are investing in education and training to enhance their stock of human capital toward becoming more productive and competitive and to transition to a knowledge economy.

As a way forward, this report proposes several policy actions for these two countries to promote a more productive and inclusive human development outcome. The analysis presented in this report and the policy actions suggested can be useful to other DMCs, particularly those in the South Asia region, where the human development index is still relatively low compared to those in most of the other regions. The study provides an important framework to analyze the prospects of investing in the development of human capital in low-income countries, lower-middle-income countries, and upper-middle-income countries supported by ADB. The report proposes to broaden the access to education by targeting the poor households with a particular focus on improving the quality of education, the coverage of higher-quality technical and vocational education and training, and higher education to facilitate the transition to both medium and higher skills to move up the value chain. This will require, the report argues, expanding training capacities, strengthening school–industry cooperation, improving the mobility and flexibility in labor markets, and reducing mismatches in supply and demand of labor.

Hun Kim

Director General

South Asia Department, ADB

Acknowledgments

This report was prepared by a team led by Dr. Jong-Wha Lee. The report benefited from the contributions of Ruth Francisco and Dainn Wie, and the outstanding research support by Hanol Lee, Chul Jon Song, and Eunbi Song of Dr. Lee’s team.

Juan Miranda, in his capacity as the Director General, South Asia Department (SARD), encouraged the study. We thank the following Asian Development Bank (ADB) staff who served as peer reviewers and provided comments while this report was being prepared: Diwesh Sharan, Director, Urban and Social Sectors Division, East Asia Department (EARD); Sungsup Ra, Director, South Asia