Human Capital Investments for Glacier Countries

In October 2018, the World Bank launched the Human Capital Project, which is focused on promoting global economic growth and equity. Its primary component is the Human Capital Index (HCI), an assessment of children’s access to basic human rights around the world. The HCI takes into account information about children’s health and education, using these indicators to compile an ultimate score of the future generation’s productivity as it relates to the country’s economic potential. Read more about the Human Capital Project in the official published booklet, openly available here.

Countries with glaciers face many challenges associated with climate change, and having strong, healthy, educated populations will contribute to their adaptive capacity. Thus, the Human Capital Index has many implications for glacier countries.

What makes up the Human Capital Index?

The HCI is separated into three components, each of which are made up of statistical indicators:

  1. Survival
    • Probability of survival to age 5 (0-1)
  2. Education
    • Expected years of school (0-14)
    • Harmonized test score (300-625)
  3. Health
    • Fraction of children under 5 not stunted (0-1)
    • Fraction of 15-year olds who survive to age 60 (0-1)
World map with HCI quartile scores shaded for every country (Source: The World Bank).

How do we interpret countries’ individual HCI scores?

Through compilation of the above indicators, each country will receive a HCI score from 0-1. Every country is then ranked into quartiles, with the top quartile representing the countries with scores in the top 25 percent of the world, third quartile representing the next 25 percent of countries, and so on.

According to the Human Capital Project Booklet, “A country in which a child born today can expect to achieve both full health (no stunting and 100 percent adult survival) and full education potential (14 years of high-quality school by age 18) will score a value of 1 on the index.”

Take Switzerland, which received an HCI score of 0.77, as an example. A score of 0.77 means that the future productivity for a worker born today, given current levels of survival, education, and health, is 23 percent lower than what it could be. Likewise, Nepal, which received an HCI score of 0.49, could improve by up to 51 percent based on its current state.

What are the implications for glacier countries?

On the right is a table which includes data from the HCI, HDI (Human Development Index), and GDP per capita for several glacier countries, with cells color-coded to the quartile they match on the map above. The HDI measures a country’s achievement in several categories of human development beyond the confines of economic growth; read more about it here

The HCI ranks glacier countries in similar ways to how they are ranked by the HDI and GDP per capita, with some exceptions. For example, Chile has a relatively high HCI score and HDI score when compared with its GDP per capita. In 2006, Chile launched Chile Crece Contigo (Chile Grows With You), a program focused on early childhood development. Chile’s actions showcase it as an example of a middle-income country that has made the policies highlighted by the HCI feasible on a large scale. Other examples of countries who scored higher on the HCI than their relative GDP per capita are Austria and New Zealand. 

The graph to the left shows the relationship between HCI score and GDP per capita for several glacier countries. Countries that are above the line show high HCI scores relative to their GDP per capita, and countries below the line show low HCI scores relative to their GDP per capita.

This points to the importance of investment in human capital for countries of any income level. In addition, though GDP per capita and HCI scores are positively correlated, countries must allocate part of their income to investment in human capital in order to receive superlinear benefits (meaning they would be placed above the line). 

How do these indicators translate to economic potential?

The survival, education, and health of people in any country can be estimated by the HCI’s parameters. There is a direct link between the education and health of individuals and their potential productivity as workers. Once more, there is a direct link between worker productivity and a country’s ability to increase their GDP in the long-term.

Simply put, investing in the well-being of the future generation is absolutely essential to a country’s long-term economic success. Investing in the children of today will help ensure increased productivity, reduced poverty, and a better quality of life when they become of working age. This will also help countries increase their GDP, allowing for sustainable growth and more opportunity to invest back in survival, education, and health measures for the next generation.

What are the barriers to investment in human capital?

One barrier to investment in human capital is time. Investment in children will likely not see any return for at least another 18 years. Due to both political and economic benefits, policymakers may be inclined to focus on what can be done in the short-term to improve people’s lives, such as building bridges and roads. This attachment to immediacy can lead to an underinvestment in the survival, education, and health of today’s children.

Glacier countries are particularly vulnerable to the accumulating effects of global climate change. However, the slow process of glacial melting and the delayed return on investment in today’s children may similarly lead residents of glacier countries to focus on problems and solutions that are more pressing in the short term. Nonetheless, to increase their prosperity into the future, glacier countries benefit from considering the importance of investing in human capital.

 

Want to know more about the Human Capital Index?

Video of the Week: The World Bank’s Human Capital Index

Video of the Week: The World Bank’s Human Capital Index

This Video of the Week provides an introduction to the World Bank’s newly released Human Capital Index (HCI); it explains what the Human Capital Index is, how it works, and why it is important. 

The HCI measures investment in human capital in countries around the world. It highlights the necessity of basic human rights for children of the next generation of workers, such as: social and economic equality, good health, proper nutrition, and access to education. Proper investment in human capital is essential to facilitate economic development and prosperity on the national level. At the individual level, investment in human capital works to help people reach their true potential, provide for their future families, and improve overall quality of life.

This index also calls attention to existing disparities between glacier countries. The United States, Switzerland, Norway, Austria, Iceland, and New Zealand have HCIs ranking in the top (fourth) quartile of countries; Peru, Ecuador, Chile, and Kyrgyzstan rank in the third HCI quartile; Tajikistan and Nepal rank in the second HCI quartile. Bolivia and Bhutan both lacked data to calculate HCI values.

Watch the video below, and explore the World Bank’s Human Capital Project webpage for more information.

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