The development of an improved human capital index for assessing and forecasting national capacity and development

Human capital theory is accepted as one of the foundational theories of socioeconomicdevelopment. Although, according to founding scholars, any acquired qualitiesand abilities that help individuals and groups be economically productive can beconsidered as individual or group human capital, the classical human capital modelfocuses on schooling and training as the major factors comprising human capital onindividual, group, and national levels. Consequently, current human capital measurementtools generally assess only educational attainment on these levels.Because of this overly simplified approach, the present manner in which humancapital is commonly measured by national and international entities creates difficulty inaccurately assessing the strengths and weaknesses of human capital within and betweencountries. A major challenge to improvement of human capital variables is identificationand availability of data. The factors suggested to have significant impact on humancapital are mostly intangible. Collecting such data is cost prohibitive for manydeveloping countries. Consequently, national policy-makers, multinational corporationsand international aid organizations use simplified estimates of human capital. The purpose of this dissertation is to construct and validate a more comprehensivehuman capital index. Study research questions include: 1) What are the significant factorsthat affect national human capital as revealed in the literature? 2) Can an expandedmeasure of national human capital be developed to reflect adequate content of HCidentified in the literature? 3) What is the preliminary evidence supporting the validity ofthe newly developed human capital index? This analysis resulted in the formation of anew human capital index, which is expanded due to the incorporation of new variablestogether with the routinely used education measures.The sample panel data is from 163 countries for the years 2000-2005. Literaturecontent analysis, factor analysis and regression analyses are used to support theexploration of the research questions. The results of the analyses suggest that a humancapital model, which includes additional variables together with currently used educationvariables, predicts the level of national economic development significantly better thanthe model which includes only education measures. These results have implications forhuman resource development, corporate human capital management, national education,and international aid policies.