itascabili 8. HUMAN CAPITAL, a Resource for Development - Avsi

itascabili 

8 

per la didattica 

AVSI pocketbooks 

HUMAN CAPITAL, 

a Resource for Development 

The Experiences in the World of three Italian NGOs: 

AVSI, ICU and Monserrate 

PARTNER 

SCIENTIFICO


8 

per la didattica 


HUMAN CAPITAL, 

a Resource for Development 

The Experiences in the World of three Italian NGOs: 

AVSI, ICU and Monserrate 

PARTNER 

S CIENTIFICO

“Human Capital, a Resource for Development” is the Development 

Education project promoted by AVSI in a consortium with ICU and Monserrate and funded by the 

General Directorate for Development Cooperation (GDDC) of the Italian Ministry for Foreign Affairs. 

The proposed objective is that of contributing to the promotion of the right to education for every 

person as a factor for sustainable development, to raise awareness and mobilize support and resources 

for Human Capital growth in developing countries and to promote access of young people to education 

and training opportunities, showing success stories and ongoing projects implemented by the three 

NGOs in the consortium. 

Presenting concrete examples of cooperation interventions conducted in developing countries we set out 

to raise awareness in the public opinion on the importance of investing in human capital as a fundamental 

resource to reduce poverty, promote democracy and peace and achieve sustainable development. 

Made by AVSI www.avsi.org 

In collaboration with Fondazione per la Sussidiarietà 

Cover image: pupil of AVSI’s Little Prince School in Nairobi, Kenya - Photo by Silvia Morara 

Graphic design: Accent on Design, Milan 

Photocomposition and printing: Pirovano srl 

Milan, January 2008 

ISBN code 978-88-903534-1-3 

PARTNER 

SCIENTIFICO 

AVSI - Italia 

20158 Milano - Via Legnone, 4 

Phone: +39 02 6749881 - milano@avsi.org 

47023 Cesena (FC) - V.le Carducci, 85 

Phone: +39 0547 360811 - cesena@avsi.org 

AVSI USA 

Headquarters: 125 Maiden Lane 15th fl oor - New York, NY 10038 

DC Offi ce: 529 14th Street NW - Suite 994 - Washington, DC 20045 

Ph/Fax: +1.212.490.8043 - infoavsi-usa@avsi.org - www.avsi-usa.org

The Experiences in the World of three Italian NGOs: AVSI, ICU and Monserrate 

human capital 

a resource for development 

Table of Contents 

Presentation 5 

1. HUMAN CAPITAL AND HOW TO MEASURE IT 13 

1.1. Introduction 14 

1.2. The Human Capital Concept from the Origins to the Present Day 15 

1.3. Methods to Measure Human Capital 20 

1.3.1. The Prospective Method 21 

1.3.2. The Retrospective Method 23 

1.3.3. Comments 24 

1.4. Human Capital Indicators 26 

1.4.1. Human Capital Indicators in the Prospective Approach 26 

1.4.2. Human Capital Indicators in the Educational Performance Approach 27 

1.4.3. Human Capital Indicators in the Cognitive Skills Approach 27 

1.5. Human Capital and Income Distribution 28 

1.5.1. The Chicago School Approach 29 

1.5.2. Mincer’s Model and Empirical Evidence 29 

1.5.3. Becker’s Study on Skills and Income Distribution 31 

1.5.4. Human Capital as a Factor to Explain Inequality 34 

1.5.5. Remarks and Recent Approaches 36 

1.5.6. Conclusion 37 

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2. HUMAN CAPITAL AND DEVELOPING COUNTRIES 39 


2.2. The Developing Countries 40 

2.2.1. The Role of Human Capital in the Theories of Growth of DCs 40 

2.2.2. Education and Economic Growth: Empirical Evidence 42 

2.2.3. Human Capital and Poverty 45 

2.3. Human Capital and Conditions for Growth in DCs 47 

2.3.1. Human Capital Quality and Inequality 48 

2.3.2. Globalization and Liberalization 49 

2.3.3. Evidence: Convergence or Divergence 51 

2.3.4. External Debt and International Aid 53 

2.4. Human Development 54 

2.5. Conclusion 57 

3. DEVELOPMENT AID AND CIVIL SOCIETY 59 


3.2. The Experiences of Non-Governmental Organizations 61 

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3.2.1. AVSI’s OVC Project: Orphans and Vulnerable Children 61 

3.2.2. ICU: Kinal Project in Guatemala 69 

3.2.3. Monserrate: St. Riccardo Pampuri Centre of Bogota in Colombia 74 

BIBLIOGRAPHY 78


human capital 


Presentation 

This publication is part of a project called “Human Capital, A Resource for Development” 

promoted by AVSI in a consortium with two other Italian NGOs, namely ICU and Monserrate, 

and is funded by the General Directorate for Development Cooperation (GDDC) of the 

Italian Ministry for Foreign Affairs. The proposed objective is that of contributing to the 

promotion of the right to education for every person as a factor for sustainable development, 

to raise awareness and mobilize support and resources for Human Capital growth in developing 

countries and to promote access of young people to education and training opportunities, 

showing success stories and ongoing projects implemented by the three NGOs in the 

consortium. Chapter One has been prepared by the Foundation for Subsidiarity with the 

contribution of Prof. Pietro Giorgio Lovaglio, Professor from the Department of Statistics of 

Bicocca University of Milan, and is dedicated to the issue of Human Capital. The Human 

Capital concept will be illustrated as an economic concept accompanied by a description of 

the various attempts that have been made to evaluate it in the history of economic thought. A 

particular focus will be placed on the approaches based on the cost of human growth, on the 

calculation of expected income streams and on the outcomes of the Chicago School. Chapter 

Two analyzes the Human Capital concept in relation to developing countries and illustrates 

the underlying theoretical implications vis-à-vis growth, development and poverty as well as 

the latest empirical evidence. Chapter Three deals with case studies related to some initiatives 

carried out in the framework of the development policies adopted by three Italian NGOs: 

AVSI, ICU and Monserrate. In particular, the most remarkable and effective results will be 

shown in order to assess the efficiency of the measures taken. 

PARTNER 

SCIENTIFICO 

The Foundation for Subsidiarity is presided over by 

Giorgio Vittadini and was founded in 2002 as a forum for 

dialogue among entities committed to “giving support to 

individuals in their training and expressive itineraries within society” (Art. 2 of the Articles of 

Incorporation). In accordance with such objective the Foundation for Subsidiarity promotes 

cultural and scientific initiatives for the dissemination of a vision of society based on the 

centrality of the individual and on the principle of subsidiarity with an emphasis on the 

related educational aspects. The Foundation’s vision draws inspiration from the principle of 

subsidiarity, i.e. the idea that the individual person comes first in society and society comes 

before the State. In this way, all decisions concerning the general interest are made with the 

closest possible reference to the role of citizens. The Foundation sets out to promote the study 

of social, political and economic issues and to deal with them by applying the subsidiarity 

principle. It also intends to promote excellence in training, guidance and vocational paths 

in the socio-economic world and to enhance dialogue with all stakeholders committed to a 

development that does not hinder pluralism and is directed to the common good. 

Web site: www.sussidiarieta.net 

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The three partners involved in this project are: 

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1) AVSI 

AVSI Foundation is a not-for-profit Non-Governmental 

Organization which was set up in 1972 and is now busy with 

around 100 development cooperation projects in 40 countries 

worldwide. AVSI is now present in Africa, Latin America, 

Eastern Europe, the Middle East and Asia with interventions in 

the sectors of healthcare, hygiene, children in need, education, 

vocational training, rehabilitation of marginal urban areas, agriculture, the environment, 

micro-entrepreneurship, food safety, information & communication technologies 

and humanitarian emergencies. 

AVSI’s mission consists in supporting human development in the poorest countries in 

the world in the wake of the Catholic Social Doctrine with an emphasis on education 

and the promotion of each individual’s dignity in all its aspects. The plight experienced 

by many populations needs to be fought with the focus being on the uniqueness of 

each individual and the use of education as a tool to allow talented people to thrive. 

There is no other way to consolidate a development model but to let people grow and, 

through them, to foster peace. Without education - which is not limited to “literacy” 

- it is virtually impossible to make a person think of a different future. Education 

provides people with the tools and knowledge necessary to understand our world and 

be protagonists in it. Education helps support those human values by contributing to 

the individual and collective well-being. Education makes people more independent 

and aware of their own rights and opportunities. Education has an impact on human 

development as well as on the growth of poor countries. 

AVSI’s method basically consists of five items: 

• Centrality of the individual. Implementing a project with an emphasis on the 

centrality of the individual means sharing their needs and philosophy on life and 

connecting fully with their personal situation. Without this responses to needs are 

merely acts of kind-heartednessd done either out of self interest or in pursuance of 

some political objective. Every person is seen as a unique, unrepeatable individual 

who cannot be reduced to any sociological category. 

• Starting from the positive. Every person and every community represents a potential 

resource, regardless of their weaknesses. This means valuing the social context 

and experiences which form part of the individual’s heritage. This basic operational 

principle originates from the positive approach to reality and helps people acquire a 

sense of self worth and dignity and to take responsibilities for their actions. 

• Doing with. A project with “a top down approach” is either violent, because not 

shared, or not effective, because assistance-oriented. AVSI’s approach to project


human capital 


design and implementation is ‘doing with people’, i.e. starting from the relationship 

with the people to which the project is directed. 

• Development of intermediate bodies and Subsidiarity. Society is made up of the 

free aggregation of persons and families. A development project means enhancing 

the capacity of people to associate, thereby recognizing and supporting the creation 

of intermediate bodies and of a responsible and integrated social context. The right 

of every person to free association and also to economic enterprise becomes a 

powerful factor in change through experience. 

• Partnership. Development projects are based on real partnerships among all entities 

of a particular field, including institutions that are public and private, local 

and international, avoiding duplications and promoting synergies to optimize the 

available resources. 

Approximately 100 Italian expatriates and over 1,000 local staff qualified in different 

branches are employed in AVSI’s ongoing projects. The Italian expatriates are all professionals 

such as doctors, engineers, educators and agronomists who are ready to stay 

abroad for an average period of two years. AVSI is a member of an unofficial network 

with 27 more Non-Governmental Organizations and associations, 17 of which are 

based either in the South of the world or in a transition country. AVSI spends more 

than 20 m Euros a year to implement their projects. AVSI’s major financial backers are 

the European Union, the UN Agencies, the Italian Government, local agencies, private 

companies and organizations and individual citizens. 

Every year AVSI issues a social report - which has been awarded the financial report 

Oscar in the not-for-profit category by the Milan Stock Exchange. The social report 

is a valuable tool to support AVSI’s commitment towards a continuous improvement 

vis-à-vis donors, collaborators and beneficiaries. To enhance its responsibilities AVSI 

has adopted a Quality Management System according to ISO 9001:2000 guidelines in 

relation to its planning phase. 

AVSI was recognized by the Italian Ministry for Foreign Affairs in 1973 as a Non-governmental 

Organization for International Cooperation. It is registered as an International 

Organization with the United States Agency for International Development (USAID). 

It has been accredited with the United Nations Economic and Social Council (Ecosoc) 

since 1996. AVSI is also accredited with an advisory status with the United Nations 

Industrial Development Organization based in Vienna (UNIDO) as well as with the 

United Nations Children’s Fund (UNICEF). It is also listed in the Special List of Non- 

Governmental Organizations of the UN International Labour Organization of Geneva 

(Ilo). AVSI is also authorized by the International Adoption Committee of the Italian 

Government to look after international adoption procedures. 

Web site: www.avsi.org 

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2) ICU 

ICU - Institute for University Co-operation 

Onlus - is recognized by the European 

Commission and the Italian Ministry of 

Foreign Affairs as a non-governmental organization 

operating in the field of development cooperation. ICU was founded on the 

initiative of some Italian teachers in 1966 with the objective of promoting the development 

of culture and sciences at the service of mankind at an international level. 

This objective results in a twofold action from ICE: 

• A human and social development of less industrialized or transition countries 

implementing international cooperation programmes with a specific focus 

on training; 

• The dissemination of a culture of development cooperation regarded as a 

complete promotion of human dignity. 

ICU’s action is based on a flexible approach and long-term vision, rather than being 

merely an assistance-based attitude. In developing countries ICU often supports 

the growth of university institutes in the belief that the university method for 

research - a rigorous, yet at the same time creative approach - can be at the service 

of mankind to find possible solutions for underdevelopment issues. According 

to ICU, work is a key factor in development and particular attention is dedicated 

to young people interested in international voluntary work through student 

exchanges and initiatives. 

Over 350 cooperation projects have been implemented by ICU ever since its foundation 

in 35 countries in Latin America, Africa, the Mediterranean basin, near East, 

Eastern Europe, Asia and the Pacific. The main intervention areas are: university 

cooperation, education and vocational training, hygiene and health, rural development, 

promotion of women’s issues, social development and emergency relief. In all 

programmes ICU gives priority to local staff in the matter of training, with the aim 

of a human, durable, autonomous development. Training is carried out at various 

levels - i.e. university, middle management, vocational training, etc. - with a specific 

focus on trainers’ training and women’s training. 

Local staff and agencies are involved in all programmes. ICU’s action is founded on 

an in-depth knowledge of the culture and situations of the areas of intervention as 

well as on the work performed jointly with universities and other local and private 

institutions. The sustainability of the various interventions is supported by innovative 

donor-beneficiary relationships made possible by the financial funding provided 

by local institutions. 

The programmes implemented entail the employment of European experts who


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are involved in disseminating technical knowledge, work methods and know-how 

among their peers. 

ICU is a partner of ECHO (European Community Humanitarian Office) for the 

management of emergency projects. It is also acknowledged by USAID (US Agency 

for International Development) and is a member of the board of directors of READI 

(Red Euro-Arabe de ONG para el Desarrollo y la Integracìon). ICU collaborates with 

and is funded by the Ministry for Foreign Affairs, along with other Italian local agencies, 

the European Union and International Bodies. It is also supported by foundations, 

the business world and private donors. 

Web site: www.icu.it 

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3) MONSERRATE 

Monserrate is a major reference point in 

terms of international cultural and scientific 

dialogue implemented through cultural, 

educational and training projects for the 

promotion of sustainable development in emerging and developing countries. This NGO 

(Non-Governmental Organization) was formally recognized by the Italian Ministry for 

Foreign Affairs in 2001. 

Founded in Italy in 1994, Monserrate is working today on all continents with expatriates 

as well as local, properly trained staff. Local NGOs and foundations have been set up for a 

continuous interaction with Monserrate contributing their valuable support based on their 

on-field experience in promoting the usage of resources, sharing initiatives for development 

with others and backing up their implementation. This formal network of institutions 

refer to Milan-based Monserrate’s main offices and is further organized by the two 

subsidiaries based in Beijing (China) and Bogota (Colombia) which look after the Asian 

continent and the Americas respectively. 

Monserrate is conceived to facilitate a two-way dialogue between cultures and peoples. To 

this end Monserrate has an active presence in all continents today fostering international 

cooperation projects in emerging countries like Latin America, in the poorest countries in 

the world such as central African countries and in world powers such as China. 

Monserrate believes that if we want to construct a true network of fair and equitable relationships 

among countries and peoples we basically need to promote a meeting among 

different people to facilitate mutual understanding and constructive discussion. The 

exchange of knowledge, vision and methods forms the basis of a long-lasting construction 

capable of bringing about changes in real life. Since Monserrate was founded its action has 

mainly been focused on education - from primary schooling to post-university education 

- as well as on training - vocational, scientific and top managerial management. Education 

and training are both regarded as essential for real development action. Investing on human 

capital and exchanging knowledge represent key factors for Monserrate in setting up local 

entities (individual people and institutions) in developing countries enabling them to play 

a role in supportive and equitable development. 

To ensure high-quality training worldwide, in the last few years Monserrate has established 

a world network of high quality experts who take part in training activities and disseminate 

knowledge triggering a positive process of cultural and scientific dialogue with the recipient 

countries, governmental institutions, universities and local business organizations. 

The introduction of positive training activities have been made possible due to a 

number of key factors: 

a) A new method 

Training cannot be the mere transmission of new economic and social theories applied 

with a top-down approach or the transfer of cultural models which are completely irrel-


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evant to the local culture and traditions. Monserrate has given priority to the issue of 

the individual’s role in order to introduce training initiatives in which the history and 

culture of the recipient country can be promoted and at the same time a real change can 

be brought about. 

Such player must be a link between the provider country and the recipient country 

where action is taken. There must be institutions and organizations in the recipient 

country capable of working with the provider countries and stimulating dialogue and 

research for the promotion of the common good. Once such a path has been embarked 

upon it must not be interrupted when the project comes to an end. 

b) A new communication system 

To this end a new communication system has been introduced to establish a permanent 

contact among the various players involved, i.e. provider countries and recipient 

countries. The MICES © system has therefore been conceived to enable all points in the 

network to communicate with each other 24/7. Such a system has made it possible to 

provide top-quality training worldwide and has generated autonomous local institutions 

which will be the backbone of their country’s future development. 

c) A new local reality 

It is envisaged that such actions will consist in starting “programmes” for a long term 

compared to single projects lasting for a maximum of three years. Experience has 

proved that it takes at least 8 to 10 years uninterrupted work to bring about a real 

change in cultural habits and traditions. 

These begin through local institutions which are managed firstly by expatriate personnel 

and then by local people who have been properly trained with the NGO as a constant 

point of reference. Eventually all this will result in the development of permanent 

poles which are regarded as sustainable development models built around individuals 

and in the organization of pilot projects which are continuously monitored in order to 

successfully respond to local needs. Short-term objectives are achieved which in turn 

generate long-term development factors. In other words, the creation of permanent 

poles becomes a work method statement. Experience proves that a pole with which 

people have been working for a long time can generate the creation of other similar 

development poles due to the action of the local, properly trained staff. 

This is how a virtuous circle is generated, which bears fruit both permanently and efficiently. 

Eventually the result of this cascade process is real sustainable development. 

Web site: www.monserrate.org 

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THE HUMAN CAPITAL 

and how to measure it

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1.1. Introduction 

Almost the entire history of economic thought has evolved whilst neglecting the development 

and analysis of a fundamental variable of any national economy: human capital. 

Until mid-18th century the intellectual dominance of Mercantilism suggested that a 

nation’s wealth was based on the surplus of export over import. 

Later, the Physiocrats moved the focus onto agricultural production as a key factor for a 

nation’s wealth and for the well-being of its citizens. In the wake of such theories came 

those of the Classical Economists who amended the physiocratic concept adding industrial 

and commercial sectors to that of agriculture. 

Many social science scholars have acknowledged that education and acquired skills 

contribute to the measurement of human capital. However, a large number of economists 

are still reluctant to concede that human beings can be equated with capital, 

economically speaking. Such ideas are based on some vague, sometimes inconsistent 

ethical principles. 

It has often been considered morally wrong and ethically degrading to regard education 

as a means to create capital. The very idea of human capital is distasteful because 

education generally has a cultural, not an economic purpose. Education is needed for 

personal growth and it provides people with the ability to assess what is important in 

their lives. 

These ideas may or may not sound unexceptionable, but one cannot escape the fact 

that education enables people to increase their level of knowledge, thereby increasing 

the human capital stock and enhancing people’s skills and competence from the point 

of view of work and business management. Such changes result in an increase of both 

personal and national income. 

The ultimate evidence consists in the fact that the more people are educated, the more 

they earn when compared to other people. This happens both in developed countries 

like the UK and the United States and in developing countries as varied as India and 

Cuba, whether we are speaking of 100 years ago or the present time. In addition, the 

inequality of income and earnings has a direct correlation with inequality in education 

and the acquisition of knowledge - the differential being the level of education. Similarly, 

unemployment is directly correlated with an inequality in years spent in schools and 

acquired knowledge. 

The first Classical economist who introduced the human capital concept was Adam 

Smith. In his work “The Wealth of Nations”, a cornerstone of political economy, he 

proposed an analogy between production by mankind and machinery. 

The concept voiced by Smith was taken into consideration by other scholars, including 

Bentham, Mill and culminating with the important contribution of Marshall. 

Although the human capital concept was presented by various authors such as W. Petty, 

R. Cantillon, J. Von Thuner, A. Marshall, I. Fisher and J.M. Clark, it was never developed 

into a theoretical structure until the mid-20th century when pioneering studies 

were made by Jacob Mincer (1958), Theodore Schultz (1960) and Gary Becker


human capital 


(1964, 1975), all of whom were encouraged by the research environment of Chicago 

University. Such contributions developed an economic theory on human capital which 

was mainly based on the idea of years of schooling and on-the-job professional experience 

as explanatory variables of an individual’s earning capacity. 

Before the developments brought about by the Chicago School, most economists 

limited themselves to highlighting the importance of acquired skills, competences and 

education as a motivation for salary differential, in line with Smith’s theories. 

In the second half of the 20th century the human capital study gained new 

momentum. 

The main reason for this renewed attention to human capital was due to the idea that 

an increase in physical capital, measurable and measured in the national accounts 

could account for only a relatively small portion of the increase in income of many 

countries. The attempt to explain this gap prompted in-depth debates on physical 

capital and the input employed to form human capital. Eventually, human capital and 

technological change began to be introduced in the growth models. 

Other phenomena have been taken into account recently: large increases in education 

and health expenses, increases of the unemployment rate, the breakthrough of modern 

technologies in many sectors. All this has put human capital back in the spotlight. 

1.2. The Human Capital Concept from the Origins to the Present Day 

Mankind’s pivotal role in modern societies explains the importance and necessity of indepth 

studies on human value. 

Plato spoke of social heterogeneity and highlighted the fact that individuals differ in 

terms of races and ethnic groups. Meanwhile, Aristotle proposed the natural slavery 

theory - also called aristocratic theory - claiming that human beings are neither physically 

nor intellectually equal. Who leads and who follows is determined by nature. 

Many years later, Darwin claimed that diversities among human beings are due to natural 

selection, the survival of the fittest. Pfeffer went as far as to conclude that the weakest 

would be eliminated in the struggle for existence. 

Marx’s analysis on social classes and his theories about the elimination of all differences 

between social classes are well known. 

Such authors unanimously stress the fact that differences among human beings 

depend on external factors such as climate, religious, moral and philosophical 

beliefs, and that such differences genetically contribute to the formation of diverse 

anthropological heritages. 

The human value concept has always been one of the great metaphysical ideas of economy. 

In economic terms the idea of individuals as a focal point of every economic and social 

system make the study of man’s monetary value absolutely necessary. 

Assigning a monetary value to individuals is a complex issue given the great deal of variability 

of human beings and the range of determining factors they are subjected to. 

The first difficulty encountered when trying to assign a monetary value to human beings 

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lies in the formation of an objective basis by which to assess such a delicate question. 

The various scholars who have taken up the issue of assigning a value to human beings 

have discovered that, all monetary values being equal, there is a latent, subjective assessment 

concerning the degree of personal satisfaction and well-being which each individual 

attaches to their own lives. 

In 1690 William Petty was the first to examine the issue of human capital measurement 

for fiscal problems. Petty believed that human capital coincided with labour-generated 

income. Income was taken as the perpetual yield generated by human capital stock. 

Later on in 1853 William Farr drew inspiration from Petty’s ideas and calculated the 

expected income variables of an individual in a life cycle. 

A completely different approach was formulated by Ernst Engel (1883) who determined 

a person’s value based on the costs of the growth of an individual. Engel chose the cost-ofproduction 

approach as a measurement unit from the time of birth. 

In the wake of Farr’s approach, Dublin and Lotka (1930) made considerable practical 

advances in the techniques for human capital measurement in the first half of the 20th 

century, using both the production-cost approach and the expected-earnings approach. 

In Italy Giorgio Mortara (1920) calculated the costs incurred to form an individual up to a 

given age as well as the expected individual’s future income variables for the whole Italian 

population. 

The approaches mentioned above are the most significant in the history of human capital 

measurement as they are ‘operational’ to some extent. However, all scholars agree in 

assigning the greatest role in human capital measurement to Adam Smith. In the second 

half of the 18th century he wrote “The Wealth of Nations” (1776) in which he introduced 

the human capital concept proposing an analogy between man and machines: 

“...When any expensive machine is erected, the extraordinary work to be performed by it before 

it is worn out, it must be expected, will replace the capital laid out upon it, with at least the ordinary 

profits. A man educated at the expense of much labour and time to any of those employments 

which require extraordinary dexterity and skill, may be compared to one of those expensive 

machines. The work which he learns to perform, it must be expected, over and above the usual 

wages of common labour, will replace to him the whole expense of his education, with at least the 

ordinary profits of an equally valuable capital. It must do this, too, in a reasonable time, regard 

being had to the very uncertain duration of human life, in the same manner as to the more certain 

duration of the machine” (Smith 1776, p. 93). 

To summarize, Smith reflected on the fact that an individual’s growth required the 

employment of economic resources, just as machines did. This implied that it would be 

a misjudgement to consider only the value of machines and not that of individuals in the 

stock of the wealth of a nation. The total income of a country was the sum of all material 

and personal means, i.e. of all production factors. In other words, a comparison between 

national income - the sum of all material and personal means - and wealth of the nation 

- generated with the aid of human capital - is not a homogeneous comparison. 

Smith’s ideas raised much controversy. In particular J. Mill (1848) advocated that it was 

not possible to aggregate material and personal goods as the value of the former was deter-


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mined by their ability to satisfy people’s needs. Equally, the wealth of a nation, comprised 

of material goods, only exists with reference to individuals. 

Over 100 years after Smith, Alfred Marshall (1890) defined human capital so as “... to 

include all those energies, faculties, and habits which directly contribute to making people industrially 

efficient”. Such production capabilities are also capabilities whose value can be 

measured only indirectly. 

The various theories on human capital which were developed in the 20th century were 

finalized to explain salary differentials and the various opportunities for success in the 

labour world, seeking to identify and specify the type of skills acquired which enable individuals 

to increase the human capital stock. The efforts made by the Chicago School were 

all focused in this direction. 

During the second half of the 20th century the Chicago School (Mincer, 1958; Becker, 

1964; Schultz, 1961), to which a specific chapter will be dedicated, placed emphasis on 

the human capital notion once more as a factor for salary growth and focused on the 

elements which contributed to training and human capital accumulation. In particular 

the authors outlined analytically the relationship between labour-generated income (earnings 

functions) and human capital, the latter being measured simply through the number 

of years of schooling and degree of professional experience. In parallel with the Chicago 

School studies, further theories on human capital were finalized to measure their impact 

on economic development and growth at the macro level. The major thrust for all these 

theoretical arguments was to move from a theoretical concept of human capital to an operational 

concept, i.e. a measurable human capital regarded as a factor necessary for production 

and national wealth. In many works (Fabricant, 1954; Solow, 1956; Solow et al., 

1961; Denison, 1980; Schmookler, 1966; Abramovitz, 1956; Benhabid and Spiegel, 1994) 

various authors disaggregated the factors which had repercussions on the productivity of 

economic systems and established a functional relationship between output changes and 

the changes of the inputs of the main production factors - above all physical goods (i.e. 

material goods) and labour (i.e. performance and personal attributes). 

These authors demonstrated that the increase of national production could not be explained 

statistically through the quantitative evolution of the production factors employed. In 

contrast, the increase of national production was determined by qualitative factors, i.e. 

technological progress and eventually a “rational” evolution of the labour factor. All authors 

concluded that the productivity of economic systems - i.e. growth rates of national wealth 

- was basically determined by the investments in human capital. Amongst others, Schultz’s 

studies (1960) demonstrated that the average increases in wealth in the U.S.A. between 

1889 and 1957 (3.1%) exceeded by far the increase (1.5%) of resources employed as material 

factors - increases in raw materials, power, machinery used in production, farming and 

agricultural lands, workforce as number of workhours - within the production process. 

Empirical evidence confirmed that the human capital stock which could be acquired 

through education and literacy - in the families, at school, at work - forms the basis of 

all theories which seek to explain economic growth. Another field of study about human 

capital which played a remarkable role in the economy of the 20th century was the attempt 

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to compute the human capital of each state for accounting purposes and to revise the current 

accounting systems so as to introduce human capital as a factor in national accounts. 

At present, in the fundamental relationship between national product and income - 

measured as the sum of the total value of resources employed for final consumption and of 

the value of resources invested - some of the major consumption items are represented by 

education costs (university tuition fees), health-related expenditure, public safety expenses 

incurred by both the Government and individuals. These items are treated as consumption 

of durables such as washing machines, furniture and shoes. The services performed 

by institutions such as research projects or training courses are also included as part of the 

consumption notion. 

Many authors have pointed out that the production and maintenance costs of the human 

capital stock should be included into the income statement as an investment rather than as 

a cost. In particular, expenditure incurred for education, vocational training, health on the 

workplace, etc. should be deducted from the total amount of costs. In addition, a new entry 

should be introduced in the Government’s financial reports called “investments in education” 

or, broadly speaking, “investments in human capital stock”. 

In order to measure the economic development of a country the characteristics of human 

capital cannot be ignored and must be adequately considered in the national accounts. The 

production capacity of tangible assets runs out over time, whereas that of human assets - e.g. 

initiative, professional abilities, knowledge - can be transmitted, at least partially, from one 

generation to the next through the knowledge which turns into knowledge acquired over a 

period of time (Lenti, 1967). 

The various suggestions for a review of the existing national accounts schemes pose questions 

regarding households not only from the point of view of consumption but also from the 

perspective of human capital output and services generated. In this respect, the amounts of 

each household’s profit and loss account should be incorporated into the national profit and 

loss account, so as to obtain the real national income. A household’s revenue and costs are 

represented by labour-generated income and human capital education costs respectively. 

Theoretically, it may seem easy to identify what type of costs and expenses should be useful 

to enhance human capital stock in terms of quantity and quality. In actual fact this task 

is far from straightforward given the large number of factors which need to be taken into 

consideration, i.e. differing individual goods and services, variables in market prices and 

collective, indivisible, unquantifiable goods. 

In Italy, Corrado Gini (1946; 1959, 1962) was the most passionate advocate of the human 

capital notion as a factor to be included into a nation’s wealth. Gini drew on a thesis by 

Vilfredo Pareto (1905) illustrated in the early 20th century and claimed that most of the 

wealth owned by American citizens in the years between World War I and II was derived 

from the saving accumulated by the immigrant workforce from the early 19th century 

onwards. Gini’s thesis aimed to emphasize the incorrectness in regarding wealth increases 

when brought about by physical capital while neglecting all increases in wealth when 

brought about by human capital. 

More recently J. Kendrick (1974, 1976) considered human capital as a production


human capital 


factor comprising the overall value of that portion of a nation’s population involved in 

the production process. In his main work, The Treatment of Intangible Resources as 

Capital, Kendrick split capital into four main groups: 

1. tangible nonhuman capital, which includes purchases of immovable capital and 

the changes to company stocks as well as all expenditure for durables including 

those expenses incurred by households for maintenance and growth; 

2. tangible human capital, which includes the costs necessary for producing human 

beings physically, i.e. the proportion of household expenses incurred to rear a child 

up to the working age; 

3. intangible nonhuman capital, which consists mainly of the expenses incurred 

for research and development. The corresponding output is considered as capital 

as this output is incorporated into new or enhanced production or consumption 

goods, systems and processes; 

4. intangible human capital, which includes all those expenses principally targeted 

to the enhancement of tangible human capital in terms of quality of life and productivity. 

These investments can be further subdivided into three main groups: expenditure 

due to education and vocational training, medical and health-related expenses, 

and expenditure for sector and territorial labour mobility. 

According to Kendrick’s analysis, in 1969 over 50% (53%) of the whole American 

economy was represented by human capital - of which 16% was tangible and 37% 

intangible capital, with education expenses alone accounting for nearly 90% of the 

latter. In addition in the span of time from 1949 to 1969 Kendrick reported a remarkable 

growth in intangible human capital within the American economy (from 28.42% 

to 36.89%), with a dramatic increase for education expenses (+28% against an average 

percentage growth of 6% in the other human capital items and a decrease in the weight 

on nonhuman capital). This supported his hypothesis that the increase in GNP was 

due more to human than to nonhuman capital. 

More recently there have been several contributions (Nordhaus and Tobin, 1972; 

Juster et al., 1981; Jorgenson and Fraumeni, 1989) which have sought to change the 

national accounting framework in order to measure human capital. 

In particular Jorgenson and Fraumeni (1989) have proposed a new accounting system 

for the economy of the United States which includes market and non-market activities 

to measure the role of capital formation in economic growth. The authors defined 

“full labour compensation” as the sum of market and non-market labour compensation 

minus taxes. Human and nonhuman capital was estimated in the United States between 

1949 and 1984 classifying income receivers by gender, age and level of schooling. 

The growing interest raised by human capital and its repercussions on the growth and 

development themes have had a strong impact also on International Institutions. In the 

mid-50s the Department of Economic Affairs of the United Nations (United Nations, 1953) 

defined investment in human capital as the investment made to increase labour productivity 

claiming that the future output of a nation can be developed not only through the 

growth of physical capital stocks but also by investments in education, vocational training, 

8 


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8 


20 

immigration policies, knowledge acquisition, workers’ health enhancement and enhancement 

of other intangible factors which may increase labour productivity - e.g. enhancement 

of social and family standards, development of immigration policies. 

International Institutions today maintain that human capital is the primary resource which 

is available in a country for the nation’s economic and social development. It is beyond 

dispute that human capital promotion (with human capital being the total amount of 

knowledge, skills and competence possessed by each individual) will affect employment, 

social cohesion, competitivity and quality of life positively. The ability of an economic 

system to innovate and compete is strictly connected to the accumulation and availability 

of human capital which is highly-skilled, motivated and innovative. 

Human capital is regarded as one of the fundamental concerns of an active European 

citizenship. A large number of political acts of the European Union (OECD, 1998) have 

shifted the focus on human capital, from the Amsterdam Treaty (1997) which set out to 

promote employment, to the Lisbon Council Policy Brief, which took up the challenge of 

achieving 70% employment rate within the EU countries by the year 2010 - thus equalling 

the current employment rates of the USA, Japan, the UK, the Netherlands and the 

Scandinavian countries. 

A renewed interest of the European branch of OECD (Organisation for Economic Cooperation 

and Development) for the new financial accounting prospects and the related 

proposals for social cohesion policies has revived the human capital notion as a crucial 

factor for development. On the basis of the definition contained in various papers of the 

European Commission - DG Regio (European Union, 2004) on the contribution of structural 

funds to sustainable development, human capital is referred to as an individual’s 

production potential, well-being and general state of health. Health, education, professional 

expertise and competence are all included in the human capital concept. All these 

elements contribute to human development as they determine labour productivity. 

1.3. Methods to Measure Human Capital 

The main contributions which have tried to evaluate human capital quantitatively and 

provide a measurement for the otherwise vague economic notion of human capital 

will be illustrated in this section. 

Most studies aimed at human capital measurement (an individual’s monetary value) 

can be classified according to two different methods: a retrospective method and a 

prospective method. 

This dichotomy reflects the twofold measurement approach adopted to estimate 

individual monetary value. In the former method reference is made to individuals 

as consumers. Individuals are valued as the amount of the resources spent for their 

maintenance and training. In the latter method reference is made to individuals as 

producers. Individuals are valued by means of the income which they generate. The 

retrospective method is a cost-based method which estimates human capital as the costs 

incurred for producing individuals from their birth to the time when they enter the


human capital 


labour market. The prospective method is an income-based approach which values 

human capital by estimating an individual’s future earnings 

1.3.1. The Prospective Method 

This method was labelled by Marshall as “income capitalization approach” and consists 

in an estimate of the actual value of a worker’s probable future earnings after deducting 

expenses. The probabilities of premature death and unemployment in the course of a 

worker’s life are also accounted for. 

As indicated by its name this approach refers to a present estimate of future earnings. 

Similarly, the retrospective method label refers to costs incurred in the past. 

The first person who tried to provide an explicit estimate of an individual’s value was Sir 

W. Petty (Petty, 1690) at the end of the 17th century. Petty was driven by fiscal motivations 

connected to accounting issues in England. 

In order to estimate the economic value of the working population Petty established 

each worker’s value on the basis of labour-generated income and came to the conclusion 

that this income corresponds to the yield of the human capital generating it capitalized 

in perpetuity at a certain interest rate. 

Petty calculated human capital’s monetary value in order to estimate a country’s contribution 

capacity and this prompted his assertion that human capital plays a key role in 

a nation’s wealth. 

In his estimates of the human capital of England Petty included the annual national 

wage, the average time period needed to attain it and the market interest rate for a capitalization 

of its value over time. 

Applying a macroeconomic logic Petty calculated the human capital of England as the difference 

between his estimates of the national income and property income. The difference 

amounted to £26 m and the human capital stock (CU) was estimated at £520 m, based on the 

assumption that CU is the result of labour-generated income in a lifetime capitalized in perpetuity 

at a certain interest rate i (as shown in [1], in which a 5% interest rate was applied): 

CU=Y/i [1] 

All in all, apart from the obvious criticism due to this crude calculation method, 

Petty can be credited with having launched a quantitative approach to the question 

of human capital measurement. 

With respect to Petty’s macroeconomic approach, a rigorous scientific approach 

concerning individuals as units for analysis was proposed by W. Farr (1853) with 

the capitalized-net-income-approach. Farr estimated a person’s value on the basis 

of the present value of the net future earnings which each person could reasonable 

expect to generate in their working lives. Farr’s method was influenced by the fact 

that in England there was research into a new taxation system which was no longer 

based on the income produced but rather on the probable earnings of workers 

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human capital 



during their lifetime. He estimated individual human capital as the present value of 

future expected income, minus maintenance expenditure (i.e. living expenses). He 

also accounted for each individual’s survival and employment probabilities, in which 

each man was regarded as a production factor. By this approach man’s value is represented 

by his future output as well as by the assumption that if some members of the 

community die, society will sustain a loss which can be measured on the basis of gross 

income not received by such individuals. This is the reason why Farr’s model was 

adopted by English insurance companies in those years to establish the net premium 

to be paid in order to insure man’s monetary value - depending on their age - against 

the risk of premature death. 

Farr’s method was resumed by Dublin and Lotka (1930). In the first half of the 20th 

century they contributed substantially to the techniques for future earnings quantification. 

Dublin and Lotka reformulated the estimate of man’s monetary value employing 

the present monetary value estimate of future earnings (VARA) and finally measured 

human capital both gross and net of personal costs and expected maintenance costs 

and expenses (CEA). 

VARA corresponds to the measurement of gross human capital. If the expected living 

expenses adjusted for death (CEA) are deducted from VARA, the value of net human 

capital (VARAN) of an individual at age x is obtained. 

The formula to measure an individual’s VARA at age x is as follows: 

-x 

VARA(x) = y x+t 

p x,t 

(1+i) -t 

t=1 

[2] 

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where y x+t 

is the future labour-generated earnings net of contributions paid (the top 

limit of the summation is represented by the taxpayer’s (ω) death), for a person at age 

x, p is x,t 

is the probability of survival for t years of an individual aged x and (1+i) -t is the 

formula to discount a monetary unit acquired in t years’ time back to the present day. 

The expected living costs CEA(x) of a person aged x is provided by the sum (from age 

x up to age ω, which is the estimated age when a population passes on) of the per 

capita maintenance expenses disaggregated into human capital costs (S h 

) and general 

maintenance expenses (S m 

) 

CEA(x) = S m 

(x+t)C(x+t)p x,t 

(1+i) -t +S h 

(x+t)p x,t 

(1+i) -t 

w-x 

w-x 

t=1 t=1 

weighted by the survival probability p (x,t) 

and by coefficient (1+i) -t which discounts 

future expenses and earnings (x+t) back to age x. Coefficients C (x+t) 

, which can be 

derived from national accounts, correspond to adult expenses and represent the individuals’ 

propensity to consumption which changes in accordance with age. 

[3]


human capital 


Net human capital at each age x is: 

VARAN(x)=CU(x)=VARA(x)–CEA(x) 

and corresponds to the individual economic value which society would lose (cost / 

opportunity) in terms of lost future production in the event of migration or death of a 

worker at age x. 

In brief, in the prospective method a human being is regarded as an item of fixed capital. 

Each individual generates wealth in their job. Thus, the combination of intellectual, 

physical and mental abilities of each single individual represents an economic asset 

(human capital). Any action directed to improving such a combination of abilities represents 

a real investment which enhances the value and quality of future production. 

1.3.2. The Retrospective Method 

This method was first introduced by Ernst Engel in 1883 and assumes that an individual’s 

monetary value coincides with his production cost. Engel determined man’s value on 

the basis of the costs incurred for rearing a child. The measurement unit chosen was the 

economic cost from birth to a certain age. 

The basic principle underlying the whole model is that an individual’s value (human 

capital) tends to equal their production costs, i.e. the expenses incurred to maintain 

individuals from the moment of their birth. 

On the basis of Prussian household incomes, Engel assumed that the annual costs of 

rearing a person increased on the basis of a 10% mathematical progression from birth 

to the age of full productivity - 26 for males and 20 for females. Despite the numerous 

weaknesses within this method it nevertheless inspired subsequent approaches (Eisner, 

1978) to the retrospective method. The so-called “growth ”of an individual at age x 

(between 0 and x years) is determined on the basis of consumption of a given year t due 

to food, training and general maintenance. It is logically assumed that such costs change 

depending on an individual’s age on the basis of physiological factors connected to the 

different needs of each age group and in a nearly constant manner regardless of the social 

and human environment in which individuals live. Secondly, the figures related to total 

consumption contained in the official statistical sources of the national accounts cannot 

be of great help to resolve this question as consumption for purposes other than rearing 

a child are also included in these data. 

For a correct determination of an individual’s monetary value, the first economicaccounting 

issue to be dealt with is a measurement of the expenses necessary to maintain 

workers and their households. 

The expenses related to personal capital as well as nonhuman capital have been classified 

by the authors into: 

1. Expenses for capital in progress (non productive age 0-14) 

2. Expenses for capital or finished products (productive age 14-65) 

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human capital 



3. Expenses for capital out of use/non productive use (65 and over). 

The prospective method mentioned above has inspired a version of the retrospective method 

(Dublin and Lotka, 1930) in which net human capital at age x corresponds to the net 

economic cost (CEN) for rearing a child calculated as the difference between the real 

economic cost of a person (CEE) and his present value obtained as the sum of the capitalized 

past earnings (VARP). 

For a measurement of CEE in which the real economic costs are disaggregated into education 

costs Sh and maintenance costs in a narrow sense Sm, reference is made to a formula: 

x x-5 

x-t 

CEE(x) = S m 

C x-t 

(1+i) t +S h 

(1+i) t 

t=0 t=1 

x-t 

[4] 

in which the top number of the second summation has a justification inasmuch as 

education costs are conventionally computed from the age of 6. 

For a measurement of the present value of past earnings (VARP) it is necessary to add 

the earnings y x 

attained by an individual since the age when they entered the labour 

market up to age x of interest (x>x 0 

) and duly capitalized at a market interest rate i: 

VARP(x) = y x-t 

(1+i) -t 

x-x 0 

t=0 

[5] 

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Net human capital at each age x is: 

CEN(x)=CU(x)=CEE(x)–VARP(x) 

and corresponds to past costs net of earnings acquired. 

1.3.3. Comments 

The prospective method is based on two subjective elements: the determination of future earnings 

and an interest rate which discounts future earning streams. 

Such elements add to the uncertainty of other factors such as determining the amount of 

output and length of earnings, as individuals are not capable of determining the amount and 

duration of their earnings with any degree of certainty. Quantifying the exact amounts of 

maintenance expenses is also a challenging task as it is connected to subjective factors as well 

as based on a disaggregation procedure of national accounting data. 

The issue of quantifying future earning streams was examined by Jorgenson and Fraumeni. 

After subdividing earning recipients into different “profiles”, i.e. homogeneous groups 

classified by gender, age and education, Jorgenson and Fraumeni hypothesized that 

the earnings at the age x+t of a person who is x years old coincide with the earnings of


human capital 


people aged x+t within the same profile. 

As far as the determination of the interest rate is concerned, there are no objective 

criteria as it represents a subjective time-related assessment of goods, which changes 

from one individual to another and from one area to another. For ease of calculation 

the current market interest rate may be used, but this would be too general as interest 

rates tend to change according to the type and period of the investment. Often a 5% 

interest rate has been used, this being a rate which was used in Italy in normal and 

legal contexts for many years. 

In addition, the prospective method does not take into consideration the social costs 

incurred by society in the evaluation of human capital. State investments in education, 

health, etc. are not considered either. 

The main criticism levelled at this approach consists in the fact that no human capital 

is indirectly attributed to those who do not earn any income (e.g. housewives, unemployed 

people). However, we claim that an individual’s monetary value cannot be 

reduced to the mere output of their production. Each single individual possesses an 

inherent positive value which goes beyond their monetary, mathematically determined 

measure. If society as a whole provides its members with such recognition then social 

evaluation of individuals cannot merely coincide with man’s monetary value but must 

be identified from the household’s perspective. 

Despite its limitations, however, this method is still regarded as a starting point for 

anybody who is interested in evaluating human capital: “...despite the numerous 

weaknesses related to this method, the most common way of valuing human life and 

economic loss due to the economic impact of death is that of discounting to the present 

the expected stream of future earnings for that individual” (Mishan, 1971). 

On the other hand the retrospective method finds its natural application in actuarial 

mathematics to estimate insurance premiums in relation to the costs of preventable 

diseases and premature death. 

The main limitations of the retrospective approach consist in the fact that no distinction 

is drawn between the various professional categories in terms of expenditure, or 

else that major variables such as environmental conditions, the social and cultural 

background of the parents and families to which individuals belong - i.e. education 

and occupational condition of their parents, culturally stimulating environments, etc. 

- and the “genetic” benefits contributed by individuals to society - health conditions, 

motivation, etc. - are disregarded. 

The weakest aspect of this method consists in the fact that it does not estimate human 

capital but only provides an evaluation of the costs required to form that individual. 

The retrospective method suggests measuring human capital like physical capital evaluating 

the total amount of resources invested into a child’s rearing from the time of 

their birth. Nevertheless, it should be noted that the value of human capital (and also 

of physical capital) is dependent on the production costs, demand exerted and nature 

of activities not designed for sales (Jorgenson and Fraumeni 1989, Le et al., 2003). 

8 


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human capital 



8 


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Aside from macroeconomic considerations, it is extremely difficult to quantify costs of 

investments of households and individuals in terms of human capital. In addition, the 

global expenditure for training, accommodation, food, clothing, health and transportation 

cannot be distinguished from the pure costs incurred for human capital formation 

(Dagum and Slottje, 2000). 

A positive application of the retrospective method concerns the measurement of those 

costs due to a brain drain. Brain drain represents a remarkable advantage for countries 

where migrants arrive seeking work as such countries will benefit from the output 

of such people without having borne the related training and education costs. On 

the other hand, brain drain represents a disadvantage for the countries of emigration 

which have incurred all costs during the migrants’ non productive years without 

benefiting from their output during their productive years. 

1.4. Human Capital Indicators 

The importance of human capital in economic discussion has encouraged research to 

find national indicators capable of measuring the genuine aggregate human capital 

stock for each country (World Bank 1992; United Nations 2002; Wössmann 2003). 

Following the latest research done in this field there are basically three approaches 

which are adopted by the international community: the first is derived from the 

prospective approach, the second (educational performance) is based on the number 

of units who reach a certain educational level and the third (cognitive skills) is based 

on the cognitive competence of students. 

The latter two approaches do not refer to the effects of human capital as an incomegenerating 

factor whereas the first of the three is exclusively based on this dimension. 

1.4.1. Human Capital Indicators in the Prospective Approach 

The first approach refers to indicators such as human capital output through the 

measurement of those dimensions having an impact on human capital. 

According to a OECD report (1998): The ratio between the income of highly-educated 

individuals and lower-educated individuals represents a measurement of human 

capital of the first group of workers. 

To obtain a measurement of the investments in human capital the rates of return on 

earnings are calculated. Future labour-generated earnings are considered as a proxy 

of human capital discounted to a certain date. There are also various types of earnings 

(gross, net, capital-generated, derived from investments into CU) (OECD 1998). 

In the long-term measurement of earnings other variables such as the probabilities 

of survival over time and discount rates which are variable over time are taken into 

account (United Nations, 2002). 

There are also other indicators of human capital related to the characteristics of 

workers in a given market. Some of the most important indicators are: participation in


human capital 


the labour market (aggregate employment rate), ratio of highly skilled workers, share 

of high added-value sectors, output of high-tech patents and programmes, impact of 

ICT onto the labour market. 

1.4.2. Human Capital Indicators in the Educational Performance Approach 

The educational performance approach suggests that educational performance should be 

measured using macroeconomic indicators such as: the total number of years of schooling 

of the labour force, number of educational facilities, ratio of government expenditure on 

training to GDP, per capita expenditure on education, pupil/teacher ratio (Barro and Lee 

1993; Hanushek 1996; OECD 1998; Wössmann 2003). References to human capital proxy 

include: “school enrolment” (Barro, 1991; Mankiw et al., 1992; Levine and Renelt, 1992), 

adult literacy rate (Romer, 1986), average years of schooling of workers (Psacharopoulos 

and Arriagada, 1986; Benhabib and Spiegel, 1994; Krueger and Lindahl, 2001; O’Neill, 

1995; Temple, 1999) and the number of individuals involved in an economic process with 

a certain number of years of schooling (Mulligan and Sala-i-Martin, 1997). 

Apart from the fact that there is ambiguity in the indicators used and that these are not 

disaggregated on an individual or household basis, it is clear that a country’s educational 

stock represents a mere approximate measurement of human capital, disregarding other 

major aspects such as health, training, etc. 

1.4.3. Human Capital Indicators in the Cognitive Skills Approach 

The third approach draws inspiration from the principle that the value of an individual’s 

formation depends on the amount of education provided (expressed in years), and 

even more on the quantity of years of schooling as measured through the cognitive 

skills learnt and developed (Wössmann 2003). In this sense the level of human capital 

stock depends on the quality of supply of the educational framework and schemes of 

that country. The cognitive skills achieved will be positively linked to the investments 

in human capital. 

In recent empirical applications in the field of international research on 15-year-old’s 

learning skills, e.g. TIMSS (Trends in International Mathematics and Science Study) 

and OECD-PISA (Programme for International Student Assessment) the relationship 

between human capital and economic growth has been investigated. The outcomes 

reported are consistent with the theories of development economics (Hanushek and 

Kim, 1995). 

The major breakthrough of these studies was the use of the average national knowledge 

index in some fundamental subjects like Mathematics, Sciences, Language Skills, 

Problem-solving skills taken as a proxy of a country’s human capital. More specifically, 

International Agencies such as IALS (International Adult Literacy Survey) and OECD 

have suggested that the average level of maths and science learning should be used as 

a measure of human capital (OECD 1998; Wössmann 2003). 

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1.5. Human Capital and Income Distribution 

One of the most important threads of economic research and human capital has investigated 

the connections between labour-generated income concentrations and human capital. 

Economists have debated the causes of personal earning inequalities for a long time and have 

focussed on the links with consumers’ behaviour theories. Empirical analysis, however, is 

relatively recent. 

The oldest theory about income inequality and human capital established a relationship 

between income distribution and the distribution of individual skills. Traditionally, such 

distribution was believed to be standard or gaussian (Galton’s theory). Accordingly, income 

distribution was believed to be standard. 

In contrast, in Western countries up to 1900 and still today in poor countries a steeply 

decreasing income curve has been observed (with a high concentration of economic units 

reporting nearly no income at all, a substantial absence of working class with average-high 

income and only a few people with very high income). This curve is a legacy of past economies 

with strong inequalities in income distribution. This observation was proposed by 

Pareto in 1895 and confirmed through empirical evidence. 

Income distribution curves today in developed as well as developing countries are generally 

unimodal and asymmetric. There is a relatively small concentration around very low incomes, 

a significant concentration on medium-to-low incomes and a progressively decreasing cluster 

around higher incomes. 

For a long time economists have been concerned with the issue of income distribution, trying 

to explain how a standard distribution of individual skills could combine with an asymmetric 

income distribution. 

One of the earliest interpretations was advanced by Gibrat’s model (1931). Gibrat assumed 

that current income is proportionate to past incomes adjusted by an (either increasing or 

decreasing) random error. In Gibrat’s model log-normal distribution of incomes tended to 

be symmetric and approximately standard, even though empirical evidence would deny the 

model (Kalecki, 1945). 

Pigou (Pigou, 1932) claimed that skills should not be considered as an explication for income 

inequality at all, as it was due to the unequal distribution of nonhuman capital possessed. 

Burt (1943) stressed the fact that the relevant skills needed to generate income did not necessarily 

correspond to individuals’ IQs. 

Friedman’s contribution (1957) stated that each economic analysis of income distribution 

should consider a different aspect of the implications of the economic theory. Namely, it 

should: 

• consider the differences in risk aversion and the choices among the various alternatives of 

expected income distribution probability; 

• admit that income differentials among the various economic units outweigh the advantages 

and disadvantages obtained with income through targeted action by individuals. 

Friedman’s criticism reflected the idea that the theories advanced up to that time had not sought


human capital 


to understand the processes of income formation and distribution thoroughly. 

Mincer’s pioneering work (1958) went in this direction. Mincer studied the relationship between 

individual income and skills and introduced the notion of human capital as a factor for growth 

and inequalities of income between workers in a lifetime. 

1.5.1. The Chicago School Approach 

Mincer’s contribution falls into the theories formulated by Chicago School (Schultz, 

Mincer and Becker). In the second half of the 20th century the Chicago School revived 

the human capital concept. 

Authors analyzed the economic human capital concept in a detailed way - taking the 

number of years of schooling and working experience as a baseline - and provided 

significant advances in the formation and accumulation mechanisms. 

The main thesis proposed by the Chicago School consists in the notion that years of 

schooling and on-the-job-training are the basic factors explaining the evolution of 

labour-generated income of workers over a lifetime (earnings profiles). 

Schultz, along with Mincer and Becker, was the first to concentrate on human capital 

and evaluated the effects, costs and advantages inherent in investing in human capital 

rather than in physical capital. Schultz maintained not only that human capital generated 

a service in terms of a country’s output but also that any increase in national 

income of a country was derived from a growth in human capital stock. 

According to Schultz human capital consists of the education and training complex 

(years of schooling, professional experience, working years, etc.) but principally 

consists of the human capital stock measured by that country in its national accounts. 

There are two basic components of those stocks: The absence of earnings while 

students attend school set against commitment to productive activities with a salary 

(called foregone earnings) and the direct costs and current expenses due to education 

(buildings, school fees and teaching staff salaries). Schultz obtained an empirical 

supremacy in terms of contribution to the temporal growth rate of national income, of 

“rational” capital when compared to nonhuman capital and justified by a higher profit 

rate, therefore more expedient if compared to investments in nonhuman capital. 

In particular Schultz highlighted that the main costs incurred for human capital in 

the United States in the first half of the 20th century concerned the lack of earnings 

by students: the proportion of non-realized earnings on the total education costs had 

increased from 26% in 1900 to 63% in 1956. 

1.5.2. Mincer’s Model and Empirical Evidence 

Mincer’s model sought to explain the distribution of labour-generated income through a 

differential in education among the labour force. Human capital - to be understood here as 

the number of years of schooling needed to acquire professional skills and competence - was 

seen as the variable which could better explain the noticeably asymmetric distribution of 

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labour-generated income. 

In his analysis of income growth paths, Mincer assumed that all individuals supposedly had 

the same skills and chances of finding any kind of employment which required various 

amounts of training to be performed. 

Training was classified into formal training (time spent on theoretical and practical preparation 

to learn a job) and informal training (on-the-job experience), for ease of calculation the latter 

was measured through age. 

“Formal training” was measured by the years of schooling or length of the training period, 

as official statistics do not consider the amount of time dedicated to post-school training or 

activities (e.g. free-time training courses), apprenticeships or other types of pre-work vocational 

training programmes. This means that jobs are classified hierarchically vis-à-vis the 

minimal formal training period (investment in human capital) required to be performed by a 

worker and assuming that each additional year spent on training postpones that individual’s 

earnings by precisely one year. This reduces the length of an individual’s working life (earnings 

profile) and supports the idea by which “man spends fewer years on average on those 

jobs which are considered as the best” (Jaffe and Carleton, 1954). 

Mincer’s theory maintains that individuals with a profession which requires longer formal 

training are compensated through higher earnings for the training costs which have been 

incurred both in terms of money outlays (books, fees, etc) and opportunity costs (earnings 

which they previously renounced). To evaluate the amounts of income compensation 

differential due to the different lengths of formal training (years of schooling), the thesis 

proposed by the model appears restrictive. Firstly, it is assumed that labour-generated income 

is constant throughout the length of a worker’s working life. Secondly, income discounted to 

a certain year is identical for all individuals differing only by number of years of schooling: 

V 0 

=V 1 

=V 2 

=V s 

[6] 

where V 0 

is the amount of earnings (constant throughout the length of a worker’s 

working life and equalling E 0 

) discounted to time t for a worker with 0 years’ training, 

VS is the amount of earnings (constant throughout the length of a worker’s working life 

and equalling E S 

) discounted to time t for a worker with s years’ training (and s years’ of 

non-earning). 

From a practical point of view, this thesis assumes that the income of best-educated individuals 

is higher than those of less-educated individuals. In contrast, better-educated 

individuals have a shorter working life, therefore it is assumed for ease of calculation that 

the amounts generated by these two sub-groups are the same in the long term. 

Assuming that E 0 

indicates “raw earnings”, i.e. those earnings which would be obtained 

without schooling (investment in education), Mincer demonstrated that the relationship 

between (logs of) E S 

and E 0 

could be expressed as: 

logE S 

/logE 0 

=si [7]


human capital 


that is a linear relationship of years of schooling (s) and interest rate (i) discounting future 

earnings back to the present. 

Relationship [7] shows that the distribution of the percentage differential of earnings is due 

to the differential in the years of schooling among individuals, with or without considering 

equal (innate) abilities of workers established on the assumption that each individual without 

an investment in human capital obtains the same earnings E 0 

. 

If the distribution of investments in human capital is asymmetric so is that of earnings (the 

amount of earnings derived from investments si is lower as it is dominated by E 0 

). 

Those professional categories with better abilities and expertise have a high amount of investments 

in human capital as well as a presumed si supposedly higher than logE 0 

. In less professionalized 

categories the distribution of logE 0 

tends to be prevalent. This explains the higher 

inequalities in earnings among professional categories requiring more schooling. 

The main outcomes obtained from Mincer’s empirical analysis are as follows: 

• the growth rate of earnings is higher in top-responsibility jobs to which high social status 

and substantial technical and organizational complexity are attached; 

• the growth rate is less noticeable in jobs with a low rational content (manual work) and 

decreases faster with age; 

• best-educated workers present earnings growth paths which are faster and extended over 

a longer period of time compared to those who have the same job but with a shorter 

training period. 

1.5.3. Becker’s Study on Skills and Income Distribution 

Using Mincer’s thesis as a starting point, Becker (Becker, 1965) analyzed the impact of 

human capital on the American economy from the ‘60s onwards and stated that the 

reasons usually given to explain income differential among people from different age 

groups, different geographical areas or different jobs were due to the amounts of physical 

capital, technological advances and domestic government. Some observations, however, 

suggested that a key role was played by human capital. 

In particular, Becker argued that the fact that the US - considered a country with much 

capital but little job opportunities - could export hard-work-manufactured goods and 

import capital in the ‘60s was a result of the notion that the American labour market was 

characterized by high “rational capital”. 

In this respect Becker insisted that the expected return rates of investments in human 

capital (which could be evaluated by the slopes of the so-called “earnings profiles”, i.e. 

income/age curves showing how labour-generated income changes over time and with 

age) are the factors which best account for income variability over time. An analysis of 

the conditions of several periods and countries indicate that such curves have steeper 

slopes - faster growth rates - for those who are more educated or have specific professions 

with a high rational content. 

One of the major contributions of Nobel prize-winner Becker was dedicated to a 

measurement of earnings differentials between College and High-School graduates in order 

8 


31

human capital 



to reinforce the thesis underlying Mincer’s model and the associated theories which he had 

advanced. 

For every age cohort there is a strong correlation between net earnings and level of education. 

In addition, earnings are low up to the age of 21, then recover and increase until they peak 

between 45 and 54 years of age and finally decrease in older age groups. 

Becker estimated that the earnings growth rate (for each one-year increase of schooling) of 

College graduates, High-School graduates and Elementary graduates was 15%, 7% and 5.5% 

respectively. Becker’s empirical evaluations confirmed the assumption that investment in 

human capital with equal years of schooling would yield a higher return on income rates 

starting from 25-26 years of age. Earnings are net of investment costs which are usually relatively 

high for those who go to College when they are young. In particular a higher amount 

of human capital would yield age/earnings curves with steep slopes (pay-off rates). 

From a theoretical point of view, the author extended the human capital notion to those 

investments in vocational training, health expenses, mobility-related costs and costs incurred 

for information retrieval. Particularly, vocational and professional training was indicated as 

the primary factor for human capital formation. 

In this respect Becker (1962) observed that “... some types of knowledge can be mastered better if 

simultaneously related to a practical problem; others require prolonged specialization. That is, there 

are complementarities between learning and work and between learning and time”. 

earnings 

T 

T’ 

U 

U 

T’ 

T 

age 

8 


32 

Fig. 1: Age/earnings curves for workers with a different degree of schooling and vocational training 

Figure 1 shows an age/earnings curve of an individual with no education who receives the 

same earnings throughout his life (UU segment), of an individual with a certain degree 

of schooling (T’T) and of an individual who has the same degree of schooling combined 

with on-the-job training (TT). The latter receives lower earnings during the vocational 

training period compared to the others - due to expenses incurred for training - but higher 

ones at later ages (return on investment). The first TT segment is placed below UU due to 

vocational training expenses. Growth increases with age at an ever-increasing rate initially 

- a higher-than-proportional increase - then with a decreasing rate following a concave 

function which has been confirmed by recent empirical evidence at the international level 

(Psacharopoulos, 1994).


human capital 


Becker’s thesis was endorsed by evidence through a relationship between human capital / 

earnings and innate ability. In order to evaluate the expected positive correlation between 

ability and degree of education, Becker provided empirical evidence based on American 

1950 census data to confirm his thesis according to which those with the best abilities tend to 

make more personal investments. Becker also highlighted that vocational training costs at an 

adult age and propensity for migration are higher for individuals with a higher educational 

qualification. In turn this is reflected in a higher differential in earnings among individuals 

from different educational classes. 

The final results suggested that students possessing better ability ended up as College graduates 

whereas less able students (High-School graduates) did not. In other words, those who 

chose to go on to College after High School possessed better “abilities than those from the 

same class who opted not to go on to College. This explains why a “College graduate” has 

a higher rate of return compared to a “High-School graduate”, not only because they have a 

longer training period but also due to the positive correlation between ability and length of 

schooling resulting in a higher “pay-off”. 

The same observations were extended to the earnings differentials between College graduates 

having different abilities, which were assessed through the final degree mark. 

The restrictive interpretations of Mincer model were broadened by Becker a few years later. 

In particular he extended the assumption of labour-generated income throughout a lifetime 1 

and assumed a positive relationship between learning capacity (ability) and length of training. 

The observations taken from evidence of an age/earnings curve showed an increase in income 

differentials and in the degree of concentration of labour-generated income 2 when the length 

of training changed. 

Drawing on Mincer’s contributions and generalizing equation [7], Becker constructed a model 

which takes the rate of return on vocational training into account, as vocational training is 

regarded as the principal means to increase human capital stock after schooling: 

logE S 

/logE 0 

=si+Pc [8] 

where E S 

, E 0 

, s and i have the same meaning as in [7], P represents investment in vocational 

training (in terms of costs or time) during an individual’s working career and c 

is the earnings growth rate which grows inasmuch as P (rate of return) of vocational 

training increases. According to this approach the length of school training and the 

costs incurred for investment in post-school training represent the main source of 

variability in labour-generated income and thus of inequality. 

Equation [8] confirms Mincer’s thesis according to which a worker’s equal ability income 

distribution coincides with that of investment in human capital. However, as this correlation 

is asymmetric - the higher the positive correlation between ability and amounts 

invested in human capital (length of schooling and training periods) the more asym- 

1 

Experience and acquired skills result in higher earnings over time. In contrast, declining on-the-job performances result in lower 

earnings at later ages. 

2 

Every positive correlation between skills and amount of training acquired amplifi es income differentials more than proportionally if 

the incomes of workers in different occupations are compared. 

8 


33

human capital 



8 


34 

metric it is -, income distribution is also markedly asymmetric. 

Eventually Becker demonstrated that the compensation principle of earnings levels 

compared to the differences in formal training was valid and was strongly corroborated 

by a more realistic theoretical framework. 

Recently there has been research in the field of School effectiveness demonstrating that an 

educational system appears to be the ideal place to produce those academic competences 

and knowledge bases needed to improve the capacity of developing human capital in an 

individual’s subsequent working life. It is pointed out that, generally speaking, workers 

having higher educational degrees at the time of recruitment are those who will later 

receive more training as the higher availability of human capital is an input for acquiring 

more and more human capital (Bartel and Sicherman, 1998, p. 720) while reducing 

their costs. 

The analysis of the Chicago School has been revived recently by Heckman (2003) who 

has shown that there are interesting implications for those policies supporting human 

capital formation. One euro spent on training a young person prospectively yields more 

than what one euro spent on training an older person would yield. Similarly, one euro 

spent on training a person with higher abilities yields more than with a person with less 

ability. This is basis for the fact that the most effective investments are those conducted 

during the early years of a persons’ development. 

1.5.4. Human Capital as a Factor to Explain Inequality 

According to the Chicago School, the factors determining income inequality include age, 

length of training and type of employment of individuals who have entered the labour 

market. In particular there is a systematic positive relationship between training differential 

and income inequality between individuals of the same or of different ages. 

Such conclusions are systematic vis-à-vis age group. In other words, the income differential 

between high and low-schooling groups increases relative to the number of years of working 

experience or permanence on the labour market. 

With reference to the link between income inequality and type of occupation Becker’s results 

highlighted that the type of occupation - not simply the years of training - was the most 

influential factor of income variability. The gap in the concentration of income between “top 

occupations” (managers, professionals, skilled technicians) and other occupations was much 

higher than compared to the income of workers with a different schooling and age. This 

pointed out the important role of “occupational ranking” in the study of connections between 

human capital and income inequality. Becker maintained that income differentials between 

homogeneous individuals in terms of occupation (and amount of training) are substantial 

when the human capital concept includes the length of vocational experiences, measured by 

Becker by age. 

Such observations led him to state that vocational experience (in terms of duration) influences 

productivity and earnings more in those jobs which generally require more training


human capital 


and result in differentials in earnings levels between individuals with the same occupation. 

Below are reported the conclusions of the authors of the Chicago School concerning income 

inequality: 

• the degree of income inequality largely depends on inequalities due to the level of education 

and of vocational experience; the differentials in income between workers are largely 

determined by the number of years of schooling required to perform such occupations; 

• absolute training differentials result in percentage income differentials; 

• income differential between employed workers requiring a lot of training and those 

requiring low training change as age increases; 

• the most able, economically speaking, will invest more in human capital; 

• differentials in intra-occupational income - i.e. among workers within the same profession 

and therefore homogeneous in terms of amount of training - in occupations requiring a 

high degree of training are higher than income differentials between workers of a professional 

group where less preparation is required; such evidence becomes more and more 

marked in the long term (as age increases); 

• intraoccupational income differential generally varies according to the worker’s age. This 

implies that the most important factor in explaining the degree of income inequality within 

occupations is a distribution by age of workers. 

This evidence was gathered by the scholars of the Chicago School through an empirical 

evaluation of the growth rates of earnings curves in relation to age by occupational 

subclasses requiring a different amount of training. 

The example shown in Fig. 2 summarizes this. In the figure, age/earnings curves by 

labour force type are classified into two groups. The first group (low level of training 

required) is characterized by earnings in the lifetime with a gentle slope (ABU). The 

second curve (group with high training required) shows a steeper slope (CBT). 

H 

A 

C 

yearly 

earnings 

HIGH TRAINING LEVEL 

LOW TRAINING LEVEL 

NO TRAINING 

Fig 2. Hypothetical age/earnings curves for occupations differing in the amount of training required 

As can be seen, the relationship between earnings (relative earnings inequality) of two 

individuals belonging to two labour groups with different amount of training increases 

T’ 

U’ 

T 

U 

L L’ 

S’ S 

age 

8 


35

human capital 



8 


36 

with age (from S to Sʹ), (TS/US>TʹSʹ/UʹSʹ). The relationship between earnings for individuals 

in occupational groups with little training is lower compared to the relationship 

of earnings for individuals with a higher training level. In other words, inequality 

increases in relation to “occupational ranking” (UL/US < TL/TS). 

The degree of income inequality depends on differences among occupations - determined 

by the amount of training required - as well as on differences inside each occupational 

class - determined by professional experience (age). 

1.5.5. Remarks and Recent Approaches 

The authors of the Chicago School have made substantial progress in the area of 

human capital studies. However, even their theory is incomplete. The main limitation 

of their method consists in equating human capital with a schooling-experience 

binomial without seeking to actually evaluate it (Dagum, 2004; Lovaglio, 1999; 

Vittadini et al., 2003). 

In each case, empirical evidence (Krueger and Lindahl, 2001, Card, 1999) has 

confirmed the assumptions of Mincer’s and Becker’s earnings profiles which were 

considered to have little flexibility but to be highly realistic. 

Of the alternatives suggested to estimate human capital and to understand what 

factors - teachers, social class characteristics, educational policies, etc. - lead to an 

income increase there are various growth models (Hanushek, 2001) and latent variable 

models which try to retain the outcomes of the efforts of the Chicago School 

while correcting some of their arbitrary assumptions. On this latter front newly 

introduced methodological advances (Vittadini and Lovaglio 2001; Vittadini et 

al., 2003; Dagum et al., 2007) with a sound economic grounding (Dagum, 1980; 

Dagum et al., 2003) have set out to evaluate the households’ human capital within 

an economic model to explain the relationships between wealth, income and human 

capital belonging to households. In empirical applications the importance of human 

capital as a factor to explain income and the concentration of labour-generated 

income has been highlighted. 

The approach adopted has estimated human capital at the microeconomic level 

(households or workers) within a statistical model and through indicators of investment 

activity, outcomes indicators and context factors. In addition, the proposals 

and remarks advanced by the main scholars of literature on human capital have 

been summarized and duly taken into account. 

The authors suggest that the effects of investments on labour or training of human 

capital are influenced by gender, study qualification, training level and age (OECD, 

1998; Wössmann, 2003) as well as by the intensity of training (OECD, 1998), experience 

gathered in learning by doing (Wössmann, 2003), occupational condition, 

duties or qualification, sector of activity (Jorgenson, 1995), number of full-time 

and part-time years and age at the time of entering the labour market (indicators of 

human capital investment).


human capital 


Similarly, the place of residence, age, race and gender are key factors which can 

change the amount of human capital detained with investments being equal 

(Jorgerson, 1995; OECD 1998; Wössmann, 2003) and are factors of context which 

can enhance human capital stock. 

Other factors of context include the households’ characteristics such as family status, 

personal information about the head of the household or spouse, number of children 

(Dagum and Slottje, 2000), together with the characteristics of the families of 

origin (wealth, socio-educational-economic status of parents) which can influence 

the impact of human capital on earnings when the training-educational levels are 

the same (socio-educational disadvantages which may have consequences for future 

generations). 

1.5.6. Conclusion 

In conclusion, the main reason for this focus on human capital is to explore the 

idea that the human capital variable represents a strategic tool in the functioning 

of economic development. Economic development depends on a number of factors 

which can occur individually or, more often, jointly. In particular: 

• human capital improvement in the sense of “being able to” enhances labour 

productivity and, with other factors of production being equal, leads to growth; 

• the increase of knowledge bases available within the knowledge dissemination 

vectors (companies, universities, agencies) affects the surrounding environment; 

• improved economic performance of public and private institutions - triggered 

by enhanced knowledge - will have a positive spin-off effect on the surrounding 

environment in terms of a higher demand for production factors and services, 

resulting in ever increasing development; 

• knowledge can be only partially private, i.e. its nature is largely that of public 

goods; knowledge improvement will change the frontier of production opportunities 

for all companies of a territory. 

Next to the effects of economic development, it is important to remember that a 

growth in human capital in the broader sense of a person’s education brings about 

positive effects on the quality of the relationships within a community and in turn 

on the general quality of life. An overall improvement of the environment quality 

where the economic activities are carried out is a function of the quality and quantity 

of the economic activities performed. 

More specifically, one of the main elements of human capital development of 

workers, a factor without which no suitable growth rates can be ensured to the 

system, is investment in workers’ literacy along with their full participation in the 

production process. 

Lifelong development of workers’ human capital with the purpose of protecting and 

expanding their knowledge and competences will require, however, the availability 

8 


37

human capital 



of tools and programmes enabling them to alternate between periods of work and 

time spent retraining to ensure constant updating of workers’ skills in economic 

domains which are increasingly dominated by technological advances. 

The objective of providing everybody with an opportunity for participation in the 

labour market is outlined through a new framework of values and behaviours which 

are currently gaining popularity in advanced economies. Work is no longer only a 

way to make a living but also the fundamental building block in a person’s self-fulfilment 

and the main channel for social capital formation and development. 

8 


38

THE HUMAN CAPITAL 

and Developing Countries

human capital 



8 


40 


Modern economies are characterized by a progressive change of consumption models 

towards high-tech, often intangible, goods and services where the mix between fixed 

(hard) capital stock and human (soft) capital is increasingly shifting towards the latter. 

The human capital issue takes up important implications to better understand the 

dynamics of developing countries (DCs). On the one hand, human capital is seen as a 

factor for reducing the gap with developed countries. In addition, it has been cited as 

one of the key factors in reducing the incidence of poverty in the international debate 

about this issue. 

In this chapter the human capital-related theories about poverty and development of 

DCs will be illustrated and a relationship will be established with the topic of globalization, 

placing an emphasis on the empirical evidence collected in this field. Some 

important reflections by one of the major scholars of the human capital notion, Camilo 

Dagum, will be outlined. Reference will be made to the real capacity and optimal context 

in which human capital manages to generate growth while reducing poverty. 

2.2. The Developing Countries 

According to established and traditional thinking one of the fundamental causes of a 

country’s underdevelopment lies in insufficient economic growth due to a combination 

of low physical capital stock and technological backwardness (Gerschenkron, 1962; 

Nurkse, 1953; Solow, 1988). 

Following the legacy of the great economists of the 19th century, great importance has 

been placed on the stock of plants, machinery and factories as the means to achieve 

economic growth. 

Similarly, the early studies on poverty issues in the world have centred on physical capital 

shortages and have suggested that a rapid industrialization of the so-called industrially and 

technologically “backward” countries should be achieved. This approach to the problem 

did not produce satisfying results and was severely criticized in the 70s and 80s. 

The industrialization efforts of some Latin American, African and Asian countries ended 

in failure. This helped highlight the importance of human capital as a factor for turning 

the economic potential of the available resources into an asset. In reality, physical capital 

consists of goods which are the end product of human labour. The actual potential for 

the production of goods depends on technology, which is nothing but human knowledge 

applied to production. 

2.2.1. The Role of Human Capital in the Theories of Growth of DCs 

The main components determining human capital today are education and information. 

Education is a fundamental requirement to enable people to become capable of 

attaining an adequate quantity and quality of working skills. Under the “education”


human capital 


label are a vast number of activities connected with the acquisition of knowledge and 

know-how, referred to as investment in human capital. 

Most theorists agreed on the decisive role of the human capital factor back in the 60s 

when Solow growth model was extended to include human capital in an attempt to 

enhance its explanatory capacity. More recently the developments of the endogenous 

growth theories have brought human capital back into the spotlight and have stimulated 

the production of a vast literature of empirical studies. Due to the increased 

statistical data available, there has been an attempt to check the real contribution given 

by human capital to economic growth. 

Investments in human capital have a cost which is represented by the expenditure 

needed to acquire the necessary education and are performed in view of a return 

represented by the differential in salaries between educated workers and non-educated 

workers. This occurs because investment in human capital leads to increased labour 

productivity just like physical capital does. 

Such an idea gave rise to a vast empirical literature in the 60s aimed at discovering the 

black box and measuring the contribution of the various factors of economic growth 

through an accounting scheme of growth. The most important experiment of this type 

is that by Denison (1967, 1979) who estimated the production function taking capital 

and labour (years of education acquired on average by the labour force) as input. His 

results showed that education has a positive impact over output growth and that such 

impact can be measured as being worth between 15% and 25% of the overall growth. 

More recently Mankiw, Romer and Weil (1992) extended Solow model in a rigorous 

manner by including human capital - as measured by the registration rate to secondary 

school - and managed to explain quite a sizeable proportion (approximately 2/3) of 

the variability of growth rates between the various national economies. 

Unlike physical capital, whose capacity tends to get smaller while accumulation 

continues, human capital can be an inexhaustible motor for growth. In other words, 

investments in human capital - resulting from the decisions made by economic agents 

- may generate continual growth over time which depends on factors from within the 

economic system logic. 

Lucas (1988) explained this virtuous circle stating that human capital produces positive 

externalities, which physical capital does not. Generally speaking, externalities 

occur when the choices made by an economic agent cause benefits for another agent 

without the former agent being rewarded for it, i.e. when an investment in an individual’s 

human capital increases another individuals’ productivity. 

If human capital is the fundamental input, then it would prove extremely difficult to 

produce new technological knowledge in the research and development of an economy 

where the labour force were of a low educational level. The educational level would in 

turn reduce investments in human capital, eventually ending up in underdevelopment. 

It is crucial to be able to replicate the technology developed elsewhere and adapt such 

developments to each country’s own needs. This is even truer for the poorest and least 

technologically-advanced countries. 

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human capital 



8 


42 

The economy of a developing country cannot neglect human capital training, otherwise 

it will obtain comparative advantages on a globalized scale only in terms of “mature” 

goods output, with the risk of a decline looming on the horizon. 

Japan historically represents the most significant example of a growth through replication 

as do the so-called Asian tigers. Also in this replication process the role played 

by human capital is decisive (Nelson and Phelps, 1966). The popularity of imported 

technology requires local technically skilled labour as technology is not ready to be used 

anytime in anyplace. On the contrary, technology always has to be adapted to the local 

characteristics of the importer country. On top of this peculiarity, technology requires 

technical skills which are superior to those generally possessed by the labour force in a 

backward economy. This shows the importance of having an adequately educated labour 

force available. 

There is another relevant aspect in the relationship between human capital and technological 

innovation. Backward economies might exploit the technological gap dividing 

them from advanced economies by replicating and adopting the technology developed 

by the latter. In any event, in both advanced and backward economies the availability 

of a critical mass of educated labour force is a necessary requirement for initiating 

this process (Nelson and Phelps, 1966). Certain scholars (Romer, 1990; Azariadis and 

Drazen, 1991) have identified some threshold values in the national human capital 

stock of DCs. Below and above such threshold values a vicious and a virtuous circle 

respectively are triggered off. Other studies have highlighted how the availability of 

an adequately educated labour force was a crucial factor in explaining the economic 

miracle of some Asian countries (Amsden, 1989, Lucas, 1992). 

In the case of these countries the passage from stagnation to economic lift-off was 

probably derived from the opening of international trade, which will be dealt with in 

the next paragraphs. We would like to point out here that the need for competitive 

manufacturing goods on the international market has created in these countries the 

demand for technological competence. This has resulted in higher salaries for the 

qualified labour force and has made investments in education appear more enticing 

from a monetary point of view. 

2.2.2. Education and Economic Growth: Empirical Evidence 

The most important implication of the economic theory above encourages us to conclude 

that countries with a higher education level should grow more rapidly and that this 

assumption is corroborated by empirical evidence. However, this is not always the case. 

A poignant example in this respect is Egypt where education in secondary schools and at 

university grew enormously in the 70s and 80s, whereas the economy growth rate of the 

same period was rather low. The Egyptian case is a striking anomaly. At the same time, it 

provides useful information to explain why, in some cases, the mere promotion of education 

tout court may not be a powerful contribution to economic development. 

Undoubtedly, the labour force stock of richer countries is generally more educated than


human capital 


that of poorer countries. The question raised by many economists is whether education 

is a key for that country’s strategic development or whether education comes as a result 

of that country’s strategy. 

Barro, an eminent scholar of the combination of human capital and growth of DCs 

(Barro, 1991) has sought to demonstrate the existence of a correlation, if any, between 

growth rate in a certain period and education levels in a wide number of sample countries 

and has concluded that there is a positive correlation between the growth rate of 

GNP and education of the population at the beginning of the period under scrutiny. 

Barro sees the educational situation of a country as a motor generating externalities 

and economic growth. Wolff and Gittleman (1993) have come to the same conclusion. 

Finally Benhabib and Spiegel (1994) have found out that the education stock 

has a positive impact on growth because higher education levels favour technological 

innovation of a country’s production schemes and at the same time allow it to make 

the most of the opportunities from replicating the technology of the most advanced 

countries. 

One of the pitfalls of these studies lies in the fact that they generally do not provide any 

indications as to what components (levels or types) of education are actually important 

in view of economic development. However, some general assumptions can be 

made. Secondary education appears to be more important than university education 

in the technology transfer process. This is confirmed by the growth of Asian countries 

where preference has been given to secondary education, in contrast to Latin 

American countries where preference has been given to university education (Barro, 

1998, 1997). It should also be noted that primary education - more than other levels 

of education - affects the growth of developing countries. In contrast, this relationship 

is absent in industrialized countries (Wolff and Gittleman, 1993). 

Recent studies carried out by Dixon and Hamilton (1996) for the World Bank and by 

other authors (Barro, 1997, 1998) have analyzed per capita wealth in various regions 

of the world disaggregating several factors such as human capital, physical capital and 

various natural resources and retrieving updated figures from databanks related to the 

educational levels of various countries worldwide (Kyriacou, 1991; Barro and Lee, 

1993; Nehru et al., 1995). 

In particular, a study by the World Bank highlights that in nearly all regions in the 

world (with the exception of the Middle East) the contribution of human capital to per 

capita wealth ranges between 60% and 80%, being by far the most consistent of all 

factors considered, including physical capital. 

Other authors (Benhabib and Spiegel, 1994; Pritchett, 1995) show that sometimes 

a growth in education does not affect the growth of national product. Alternatively, 

where such impact is present, it is in the negative, i.e. the countries where education 

has grown more over the last 20 or 30 years are the countries where income has grown 

less. In addition, if we seek to measure the contribution given by educational growth 

in relation to income growth, we find lower values compared to those expected by 

the theory of growth or deductibility through microeconomic analysis. For instance, 

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human capital 



Solow model predicts that a 1% increase in physical capital, in human capital or in 

labour should each contribute an increase of 0.3% to the level of income. This figure 

is confirmed empirically for physical capital and labour, but not for human capital. 

region 

growth % 

education 

absolute growth 

years of education 

growth % GDP 

per worker 

Sub-Saharan Africa 4.56 1.97 0.75 

South Asia 2.54 1.66 1.05 

Latin America 2.74 2.44 1.58 

Eastern Asia 4.00 2.83 366 

North Africa 4.74 3.19 3.99 

OECD 0.60 0.97 2.45 

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44 

Table 1: Annual growth of education and GDP worldwide 1960-85, Pritchett (1995) 

Pritchett (1995) illustrates the relationship between annual growth in education and 

productivity between 1960 and 1985 by different geographical areas, as summarized 

in Table 1. The table shows that the growth of education levels in the labour force of 

African countries was higher than in other areas in the world, including the South-East 

Asian countries. Despite this, the income growth rate in Sub-Saharan countries was 

half that of Latin American countries between 1960 and 1985 and about one fifth 

that of South-East Asian countries. In addition, in OECD countries the education 

growth rate was less than one quarter that of South-East Asian countries while the 

income rates reported amount to twice as much. Another example is given by Eastern 

European countries where the education levels were far higher than those of South- 

European regions in the 80s. Nonetheless, the per capita product in those countries 

was about a half. 

These results make it easy to understand why the theory of economic development, 

which measures human capital through the amount of national resources employed in 

education on the basis of the expected relationship between growth rates and national 

human capital stock, was eventually discontinued (Barro, 1991). 

Also in other sectors of economic research the capacity of the resources invested in 

education (theory of development) is now under discussion when measured in relation 

to the quality of human capital produced. 

The Accountability Theory is one of the relatively new study areas of human capital 

focussing on the assessment of secondary school students in basic subjects such as 

Mathematics, Foreign Languages and Sciences (quality proxy of national human capital), 

through sampling surveys (PISA, TIMSS) standardized among countries where it is 

adopted.


human capital 


Important empirical evidence has demonstrated that there is a lack of a systematic 

relationship between resources spent on education (increased material and personal 

resources) and student performance in the US, developing countries and other countries 

worldwide (Hanushek, 1997; Hanushek and Raymond, 2002). 

A vast literature on the relationship between resources and results also proves that 

for each expenditure level a further increase in expenses does not generally result 

in a higher scholastic achievement. As observed by Hanushek “… it’s not entirely 

surprising that we don’t see student performance going up when we spend more, because 

none of our policies and organization in schools pays attention to output or performance” 

(2003). 

The analysis of learning (human capital quality) of students in DCs has highlighted 

key factors which are connected with the institutional structure of a country and in 

particular with the type of educational systems. 

Among the most important studies are those by Simmons and Alexander (1978) 

who conducted a review of nine empirical studies made in developing countries, by 

Fuller (1987) who had examined about 60 studies up to 1987, by Fuller and Clark 

(1994) who had considered 43 studies made between 1987 and 1994 and finally 

by Scheerens (1999) who had updated the previous reviews including the results of 

another 13 studies made after 1993. 

The complex of studies made in developing countries have included much empirical 

evidence in the identification of potential factors playing a role in the quality of 

human capital in education. In particular, the institutional-school factor - among 

which is the duration of educational schemes - appears to have a role in developing 

countries in that the cognitive outcomes are increased more than they are in 

advanced countries (Scheerens, 1999; Riddell, 1997). Therefore it is important to 

take this into account in any educational policy for development. Secondly, such 

studies have highlighted the importance of human capital consisting of teachers in 

the schooling system - i.e. qualification and experience of teachers, good command 

of the subject taught and verbal skills possessed - along with the infrastructure and 

equipment of schools - e.g. availability of libraries and text books. 

2.2.3. Human Capital and Poverty 

Situations of extreme poverty which affect some underdeveloped areas in the world and 

poor living standards compared to the Western world have caused a re-evaluation of the 

traditional economic theories on human capital. 

In the countries which are in the spiral of poverty the living conditions are so low that no 

one is able to accumulate sufficient savings to allow some degree of capital accumulation 

or the individual capital maintenance to pass on to future generations. 

There are still about 2.5 billion poor worldwide, accounting for about 40% of the world 

population. Of these 1.5 billion are moderately poor, that is to say they live on less than 

two dollars per day, taking into account the differences in purchasing power worldwide. 

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The other 1 billion is extremely poor (surviving on less than one dollar per day). 

In Eastern Asia (including China), Southern Asia (including India) and Sub-Saharan 

Africa extremely poor people account for 15%, 30% and 50% of the population 

respectively. 

The Sub-Saharan region of Africa is where there is a dramatically high proportion 

of extremely poor people. This picture is often accompanied by a vicious circle 

presenting a reduction of per capita income. This phenomenon affects over 300 

million people who cannot even be regarded as being on the “starting blocks” on the 

road to development due to their poor health, hygiene and nourishment. 

Another important aspect of studies conducted over the last few years has considered 

the role of investments in human capital not as a factor for growth but as the 

motor of a process aimed to eliminate poverty progressively. 

In economic theories there is an established relationship between economic growth 

and poverty reduction in developing countries. However, an increase in per capita 

income will not necessarily result in a reduction of absolute poverty (those living on 

less than one dollar per day), as income distribution throughout the population is 

also to be taken into account. Not only does unequal income distribution interrupt 

the vicious circle of poverty but also leads to unequal access to resources, social 

services and economic potential of the community. 

A recent study carried out by the World Bank (Dollar and Kray, 2000) has shown 

that if it is true that there may be unwanted growth-related redistribution repercussions, 

it cannot be denied that all population layers would benefit in absolute and 

relative terms in the medium term from a stronger economic development. 

A recent analysis by the International Monetary Fund (IMF, 2000) has confirmed the 

positive correlation between a prolonged increase in national product and poverty 

reduction. Those developing countries with a low or negative income growth in the 

last few years (unfortunately, the majority of developing countries) have not attained 

any appreciable results in poverty reduction. 

The theoretical basis of the approach seeing human capital as a factor for poverty 

reduction lies not only in the role played by human capital to increase profitability 

of production factors (capital and labour) - although, as Table 1 shows, there is little 

empirical evidence in this respect - but above all in the beneficial effects to the whole 

economy. In simple words, it is assumed that an increase in the level of schooling 

of people and of their health conditions has positive repercussions over the whole 

community due to the changes associated with the demand for goods and services. 

Investments in human capital have a straightforward influence on people’s schooling 

levels and health conditions. All other things being equal, higher public expenditure 

for health and education will result in higher attendance rates among schoolchildren 

and increased access to medical treatment. 

Investments in education can have both immediate and delayed effects. Healthrelated 

expenditure brings about positive effects on economic growth especially in 

the short term resulting in improved labour force productivity and possible syner-


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gies among different social investments. Higher educational levels improve people’s 

opportunities for access to health services. 

Only a few empirical studies have managed to demonstrate the existence of a systematically 

noteworthy correlation between government’s investment in human capital 

and poverty indicators of low-income countries. 

One of the certainties which can be deducted from empirical studies is that at the 

initial stages of development when capital is the key production factor accelerated 

growth can result in higher inequality in income distribution. At advanced stages of 

development, when the key factor is represented by human capital, this relationship 

is reversed. 

In addition, human capital indicators have positive effects on factor productivity and 

economic growth, whereas public and private investment in human capital tends to 

be less significant. For instance, Filmer, Hammer and Pritchett, amongst others, have 

demonstrated that health-related public expenditure produces no significant effects 

on health indicators of developing countries (Filmer et al., 2005). Other authors 

(Flug et al., 2004) have found a weak positive correlation between education-related 

public expenditure and indicators related to the shortage of some primary goods to 

control certain economic variables - e.g. per capita income and socio-demographic 

structure of the population. 

The traditional response to this ambiguity of the empirical results is that other institutional 

factors which are related to an economic system can make a difference in 

the fight against poverty. 

These factors include efficiency of the government administration, a low level of 

economic and social inequality and the quality of institutions. A particular emphasis 

is placed on those factors determining the institutions of a certain economy such as 

the financial balance of the public administration, the composition and efficiency 

of government expenditure (including social welfare expenditure), the level of 

respect given to ownership rights, transparency of public institutions and the level 

of competition existing in that country. 

2.3. Human Capital and Conditions for Growth in DCs 

As observed earlier, empirical evidence provides contradictory indications about the 

role of human capital with respect to development and poverty reduction in DCs. 

A motivating factor in the failure of empirical evidence to confirm the expected relationship 

between education and productivity is that although this relationship exists, 

it depends on a wide range of non-secondary factors. 

One of the fundamental points to understand whether human capital can be a real 

motor for development consists in an in-depth assessment of what conditions make 

human capital an influential factor for economic growth (or else for a further increase 

in human capital stock) or a motor capable of reducing the gap between industrialized 

countries and DCs. 

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2.3.1. Human Capital Quality and Inequality 

One of the pioneers of the studies on human capital is an eminent Argentinean scholar, 

Camilo Dagum, who has made significant progress in the quantitative analysis of 

economic and social phenomena as well as in an investigation in complex methodologies 

for measuring economic inequality, human capital and well-being. 

Dagum states that the inequality between countries largely depends on one of the most 

important income dimensions, such as human capital and its unequal distribution. 

In many detailed studies supported by empirical evidence (Dagum, 1977, 1980; 1994; 

Dagum and Slottje, 2000) it has been shown that personal human capital and market 

demand largely determine personal labour-generated income (as well as family wealth 

stock), a growth in human capital stock and the reduction of inequality levels of 

income distribution across the various economic units. 

Human capital formation, accumulation and distribution all help reduce inequalities 

in income distribution. All this contributes to increased growth and economic 

development, labour sharing, the amount of labour-generated income and ultimately 

a proportion of this income is included in the national product. 

Dagum claims that in order to reduce the well-being gap between DCs and developed 

countries the only remedy lies in massive investment in human capital into technological 

sectors and in reinforcing the socio-economic infrastructures of those most disadvantaged 

countries. Without an effort aimed to reduce human capital stock inequalities 

any convergence between such distant conditions worldwide is unthinkable. 

However, generic increases in the level of education and training are not sufficient 

unless they are placed within a proper context and institutional/economic structure 

which enable personal income to be translated into increases of the national product. 

Conditions should be created to better exploit the production potential of human 

capital while ensuring high salaries to the skilled labour force in those activities 

which play a major role in economic development. At the very least it is important 

to promote research and development activities in making them more attractive for 

young talents. 

The economic context described by Dagum consists in an incentive structure capable 

of steering investment in human capital through innovative entrepreneurial activities 

towards those sectors where the contribution to growth is higher while discouraging 

activities which are merely aimed to transfer wealth and generate income which has 

not been earned. 

To return to the example of Egypt, the government paid specific attention to education 

policies in the 70s. Schooling and education were promoted at all levels up to 

university and a job in the public sector was guaranteed to anyone who had a qualification 

from a state school. The final result was a major boom of public employment 

along with a strong positive impact on government expenditure. However, this was 

combined with a lack of impact - or even a negative impact - on the average productivity 

of the public administration. Although the Egyptian labour force was the best


human capital 


trained of all developing countries, the growth rate in the 80s was one of the lowest 

due to the fact that there was a mere income transfer from taxpayers to civil servants 

without any increase in aggregate income. 

In particular, Dagum claimed that investments in human capital could be achieved 

through technical, professional and scientific training in those prestigious sectors 

representing high quality human capital stocks in themselves (e.g. Research and 

Development). 

The higher the quality of labour capable of creating technology and using it in an 

appropriate manner, the higher the growth process and more generally, the development 

process. 

From the point of view of national strategy, the accumulation process of high levels 

of human capital must be incorporated into the economic processes of each country. 

High human capital levels must be combined with correspondingly high investment 

contributions by the government as well as by multinationals or large corporations in 

socio-economic infrastructures, so that the demand for human capital can be provided 

with adequate equipment. 

Dagum’s thesis was confirmed by empirical results obtained from studies in accountability 

showing that the quality of (formal) human capital produced in various countries 

and measured through learning levels is strongly correlated with economic development 

rates (Hanushek and Kim, 1995) and that the gap between industrialized 

countries and training is a measure of different quality of human capital produced and 

accumulated in various countries. 

Human capital policies must be supported by a strong restructuring of the financial 

system and a great input must be given to selected realizable projects for investments 

in small, medium and large-sized companies. Small and medium-sized companies 

have a proportionally higher demand for labour compared to large-sized companies. 

In addition, where they are supported adequately, small and medium-sized companies 

often evolve into large companies able to compete at the international level. 

The accumulation and distribution of wealth as determined by a restructuring of 

financial systems will help reduce wealth distribution inequalities while reducing the 

inequalities in capital-generated income distribution. 

If this virtuous relationship between investments in human capital, agreements with 

the production sector and socio-economic infrastructures collapsed the supply of 

highly skilled human capital, especially scientifically skilled human capital, might 

suffer greatly. As a result, such skilled human capital might emigrate to countries 

where there is an elevated mobility of qualified labour force as occurred in various 

European countries including Italy between 1920 and 1950 and has been occurring 

in Argentina from 1950 to the present day. 

2.3.2. Globalization and Liberalization 

Another factor which makes human capital productive especially in developing countries 

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is unquestionably the degree of openness of a country’s economy to international trade. 

Globalization is a process stimulated by two factors which have always worked and 

continue to work in synergy: technological progress, facilitating the movements of goods 

and information; and the development of international trade exchanges through which 

such movements occur. 

Openness to foreign trade should make the educated labour force more productive particularly 

in developing countries firstly because production for international markets coincides 

with the use of advanced technologies requiring the availability of human capital. 

Secondly, the market would become larger. This would allow human capital to be better 

rewarded and would give incentives to investments in human capital. 

There is no doubt that a country which is more open to trade will also export to the 

markets of industrialized countries where its goods would have to compete with technologically 

sophisticated goods. In addition, in many cases this production is the result 

of foreign investments made by multinational companies. In both cases the technologies 

adopted are generally more advanced compared to those used in the sectors manufacturing 

goods for the local market as they often come from the same advanced countries 

and require higher levels of education and training of the labour force. Using technology 

which has been produced elsewhere is extremely important for backward economies as 

it is much easier to advance technologically by copying other people’s ideas and enjoying 

the errors that have been made since this enables them to learn from the mistakes of 

others. A country with such characteristics would be capable of making the most of its 

low costs for labour force and penetrate foreign markets competitively with its exports 

onto rich countries, thus beginning a virtuous circle. An increase in exports will increase 

the demand from export sectors and stimulate their production. This will increase the 

experience of the labour force and lead to the introduction of state-of-the-art technologies 

which have to evolve very quickly to keep pace with exacting markets. 

Ultimately, in an open economy human capital can be paid more because the market 

tends to grow. Human capital is less hampered by decreasing return rates which occur 

in smaller local markets. For this reason the opportunities to exploit specific talents 

would be higher. If education grows in a stagnant market the salaries of educated labour 

force suffer sooner or later from an increase in supply. This does not happen if the 

market grows. In an open economy individuals with good talents and education-generated 

or experience-generated abilities feel more prone to dedicate themselves to activities 

bringing about a growth in national product. 

This is corroborated by the observation that a wide range of developing countries, mainly 

located in Asia, have managed to penetrate the global markets over the last few years and 

have turned their abundant labour force into a competitive factor in industrial productions 

requiring high-intensity of labour. Such countries have increased productivity and 

the salaries of trained workers resulting in further investments in human capital. This 

virtuous circle has actually created economic miracles in countries like Korea, Taiwan 

and other countries. 

Globalization is seen as a great opportunity enabling the poor to benefit from the


human capital 


chances offered by commerce and trade. It is evident that economies open to international 

exchanges and capital movements are those which grow more. Exports represent a 

powerful stimulus for the development of a growing number of countries. The free movement 

of capital internationally would allow constraints represented by internal saving to 

be overcome. Developing countries open to international trade facilitate technological 

transfer, increased productivity of factors in relation to the economies of scale due to 

enlarged markets and an improvement of the efficiency of economic organization. 

2.3.3. Evidence: Convergence or Divergence 

One of the most frequently asked questions in international debates, and one which is 

immediately posed if we observe empirical evidence, is whether the gap between industrialized 

and developing countries has increased or decreased further to the international 

integration process. In other words, has globalization speeded up or slowed down a 

convergence and/or reduction process in the gap between the various countries 

Contrary to expectations, the intensification of international exchanges (in factors, goods 

and services) has been accompanied by ‘divergence’ instead of convergence between rich 

and poor countries (UNDP, 1999). Globally over the last 50 years the relative income of 

people living in the Southern hemisphere has reduced by about 1 quarter and it is only 

in the last 20 years that this trend has stopped. However, this reversal of the trend seems 

to be the case only since it is entirely based on the economic growth in China and India. 

If China and India are excluded, the income gap between economically advanced and 

backward countries has more than doubled over the last 30 years (Rodrick, 1996). 

The latest reports by the World Bank on the state of poverty of the planet come to the 

same conclusion (Chen and Ravallion, 2004). 

The proportion of people who live on less than one dollar per day nearly halved in 

the 1981-2001 period going down from 40.3% to 21.3%. This represents a giant step 

forward, nevertheless there are still over 1.1 billion people who live well beyond this 

extremely low threshold. In addition, over a half the population of developing countries 

live on less than two dollars a day. In Eastern Asia the extremely poor currently account 

for 15% of the population (compared to 60% of 1980). In Southern Asia the extremely 

poor are currently down to 30% of the population (compared to 50% of 1980). 

There are major differences hidden in the aggregate figures about the number of poor 

people in the various parts of the planet. There is the outstanding performance of China 

which alone accounts for the reduction of extreme poverty. Disregarding the figures 

related to China, the number of extreme poor has apparently increased especially in 

Sub-Saharan Africa. In absolute figures, the number of poor rose also in Latin America 

and Eastern Europe. Moreover, the number of those living on less than one dollar per 

day decreased by nearly 400 million in the last 20 years whereas the number of those 

living on less than two dollars per day increased by about 300 million. This means that 

the standard of life for those who were close to the two-dollar threshold has not changed 

significantly in the 20-year period considered. 

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Over the last 30 years, the integration process has therefore slowed down the convergence 

and/or reduction process of the gap between the various countries in terms not 

only of per capita income but also of production structures - i.e. weight of the various 

sectors, technology, accumulation rate, labour productivity - and even more strongly in 

terms of well-being, human development and social and demographic conditions - i.e. 

education, health, life expectancy. 

One of the first explanations for this is that the degree of financial flow has resulted in 

instability and cyclical crises. 

International capital and technology flows are mainly directed to other wealthy countries 

as well as to a limited number of emerging countries with a sound human capital 

stock available - a relatively educated labour force - along with basic infrastructures 

and natural resources. This has helped widen the gap within the group of developing 

countries. 

Secondly, the unequal distribution of resources worldwide and a lack of economic 

growth in many areas of the world is also ascribed to the poor “governance” skills and 

short-sightedness of the policies implemented by international economic institutions 

(International Monetary Fund and World Bank) which should have softened the negative 

effects of the latest financial crises to have hit South-East Asia and Argentina. 

Thirdly, another factor which may explain why globalization has not led to a convergence 

of most DCs towards advanced countries lies in the issue as to whether markets 

are actually open or whether there are legal or technological barriers hindering capital to 

move away from rich regions towards poor regions in order to promote a convergence 

process as predicted by that economic theory stating that capital tends to move towards 

countries with higher capital profitability. 

In addition, there may be information distortions or asymmetrical information for which 

capital does not move sufficiently or is directed to wrong destinations. All this can make 

globalization the root cause of divergence rather than convergence and eventually facilitate 

international divide in labour. Backward countries specialize in the production of 

low value-added goods having little impact on growth and low labour productivity. 

In all initiatives targeted to the liberalization of exchanges the developed countries have 

always appeared to be more interested in preserving their dominant position rather than 

in opening themselves up to developing countries in all sectors, including those which do 

not involve directly knowledge dissemination. Developing countries have always played 

a marginal role in all GATT negotiations (General Agreement on Tariffs and Trade), in the 

multilateral treaty of Uruguay Round and in the current World Trade Organization. 

The issues of agriculture and of the trade of textiles and clothing were tackled in the Uruguay 

Round of 1986-1993 which saw an active, large scale participation of the developing countries 

for the first time. Up to that time, such issues had been excluded from GATT. The 

resistance opposed by industrial countries to phasing out the Multifibre Agreement (MFA) 

which imposed quantity restrictions on the export of textiles and clothing from developing 

countries and the reluctance of Japan and the European Union to give up a strong protection 

policy so as to protect their agricultural markets partly hindered the liberalization process.


human capital 


All in all, developed countries have exploited the liberalization of trade exchanges as a means 

to penetrate the markets of developing countries and at the same time have protected sectors 

of great importance to developing countries such as agriculture and textiles, even though this 

has resulted also in a limitation to their internal markets 3 . 

In relation to agricultural markets, the level of protection by OECD countries has not 

decreased significantly compared to the levels of protection in the late 80s. Developing countries 

could all benefit from liberalization, especially those countries which have a preferential 

access to markets. 

The latest FAO report highlights the fact that the potential advantages of developing countries 

derived from trade liberalization will mainly depend on the reform of those countries’ 

trade policies. They should encourage internal trade exchanges by investing capital to help 

economic growth and salary increase of non-qualified labour force of developing countries in 

a significant manner. In particular, money should be invested in human capital training and 

in the creation of infrastructure and technology. This prediction is very sound especially if we 

consider that most poor families with food safety problems live in rural areas and that they 

are basically dependent on agriculture for survival. 

The observations above pinpoint a more complex vision of the role of globalization. On the 

one hand, globalization may facilitate technology transfer from rich economies to poor ones. 

On the other hand, it may also cause qualified labour force to flow in the opposite direction. 

A convergence of industrialized and developing countries can be produced by globalization 

only if it is accompanied by international economic policies promoting progressive forces 

- research, development, growth of human capital, externalities in the production of goods 

and knowledge - to the detriment of regressive ones (unearned income, protection of dominant 

positions, etc.). 

2.3.4. External Debt and International Aid 

Another factor of divergence between different countries derives from the outstanding debt 

of developing countries which may lead to spiralling poverty in some cases. 

It appears obvious that in the initial phase of their development backward countries accumulate 

debt to advanced countries due to low saving rates and high need for investment. 

However, if the resources borrowed are not used efficiently and do not produce high 

returns, there is risk for an unsustainable situation whereby debt repayments might absorb 

many of the resources produced by that country. 

Secondly, if a developing country has an outstanding debt to a wealthy country there is a 

risk that poverty will increase in that country. Indeed, the position of a wealthy country 

is that of moral suasion and this might legitimize trade barriers vis-à-vis the developing 

country. 

Debt relief measures are needed to break this vicious circle. Such measures must be 

3 

FAO (FAO, 2005) experts argue that the highest profi ts resulting from a liberalization of agricultural trade will be achieved by (citizens 

of) industrialized countries. Due to the current agricultural policies the agricultural sector of industrialized countries is that with the worst 

distortions worldwide today. 

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subject to the actual implementation of structural reform facilitating the effective use 

of resources. 

The issue of external debt of poor countries first arose on a large scale in the 80s, when 

it was clear that wealthy countries had extreme difficulties in recovering their loans. 

Back in 1996 the International Monetary Fund and the World Bank started an initiative 

in favour of Highly Indebted Poor Countries (HIPCs). Ever since this issue has 

been on the agenda of the Group of seven most industrialized countries. 

According to the strategy suggested, new time schedules for loan expiries and new 

fund packages should be introduced. In addition, the total or partial debt cancellation 

is suggested, subject to the presentation of structural action packages supported by the 

International Monetary Fund. 

Some studies (Baldacci et al., 2004) show that an increase in international aid - 

provided that such aid is not generic but specifically addressed to public investments 

aimed to increase human capital - would make some of the objectives established by 

the international community for developing countries more easily attainable. Among 

these objectives are the Millennium Development Goals 4 (MDGs) of the United Nations 

which all 191 member states have promised to uphold by the year 2015. 

The United Nations Organization has supported the importance to a doubling of international 

aid to developed countries as the only way to help developing countries. 

UN advisor Jeffrey Sachs was appointed by Kofi Annan as the Director of the UN 

Millennium Project, a project which set out to formulate tangible proposals for the 

realization of the goals. Sachs estimated that the minimum investment to be made by 

rich countries in order to enable the extremely poor countries to fulfil at least their 

fundamental needs is 0.5% of rich countries’ GDP (Sachs, 2005). This amount is still 

lower than the 0.7% of GDP that advanced countries had promised to pay as aid in 

favour of developing countries in the early 70s (United Nations General Assembly) 

and more recently in 1992 (Rio Conference on Sustainable Development) and 2002 

(International Summit on Financing for Development of Monterrey). The commitments 

of the developed countries were largely ignored. Still today, rich countries do 

not transfer more than an average 0.2% of their GDP to poor countries for aid. 

2.4. Human Development 

Another important aspect to be analyzed concerns economic welfare as a factor which 

is strictly connected to human capital conditions, to its qualitative improvement and 

finally to the aspects related to quality of life. Among such aspects a key role is played 

by environmental impact, hygiene conditions, safety of the workplace and participation 

to political life. 

The classical theory about human capital as a factor for growth needs to be clari- 

4 

End poverty and hunger, achieve universal primary education, promote gender equality and empower women, reduce child mortality, 

improve maternal health, combat HIV/AIDS, malaria and other diseases, ensure environmental sustainability, develop a global partnership 

for development.


human capital 


fied and extended when dealing with territorial situations or contexts where extreme 

poverty is involved. 

It is obvious that the availability of human capital or advanced technology may not 

have any appreciable results on local development if people are not able to learn how 

to use technology, do not know how to create it and, above all, lack the necessary 

means of subsistence and/or there are hindrances impeding them to attain decent 

living conditions. 

Economic theories have taken these aspects into account through a recent thread of 

study and the Economy of Welfare (Nordhaus and Tobin, 1972; Juster et al., 1981) 

theory. This theory was conceived with the purpose of measuring a community’s 

welfare. In this school of thought time and capital are the basic factors for a population’s 

welfare. Time is classified depending on whether it is employed in market 

activities, household work, leisure and biological functions. With respect to welfare, 

capital is the total amount of human capital (education and health), managerial capital 

(represented by the network of relationships established among individuals within 

families, charities and public associations), socio-political capital (social institutions 

looking after social and economic activities) and capital connected to the opportunities 

for use and access to natural resources (soil and subsoil). 

In the case of poor or extremely poor countries per capita income does not represent 

a reliable measurement of people’s standard of life. Therefore it is more reasonable to 

analyze the gap between the standard of life of developed and developing countries. 

This new approach is termed human development and emphasizes the supply of staple 

goods and services (food, shelter, clothing, health and water) which the poorest populations 

worldwide need as well as the implications for human development. 

The human development concept relies on theoretical foundations which are opposed 

to traditional theories, summarized as follows: 

• economic growth is merely one of the means and not the purpose of development; 

• the theories on human capital formation and the development of human resources 

regard human beings as a tool to increase income and wealth rather than their ultimate 

goal; 

• the welfare approach regards human beings as beneficiaries rather than as protagonists 

of the development process. 

These reflections are contained in the policies formulated by the main international 

economic organizations and aimed to promote the development of poor countries and 

cooperation interventions. 

One of such cooperation interventions, the United Nations Development Programme 

(UNDP), includes demographic factors and general living conditions as fundamental 

to long-term economic improvement and development. Welfare is estimated through 

the dimensions which incorporate health, dissemination of education and access to 

staple goods. 

The approach adopted by UNDP consists in “putting people at the centre of development”, 

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in accordance with the belief that the human dimension of development has been 

neglected in the past due to too much emphasis on economic growth. 

The different approach adopted by UNDP reflects old frictions existing within international 

organizations among those who focus on economic growth and identify this 

growth with development - e.g. the use of per capita GNP as a measure to determine 

the level of development of a country, or the use of variables such as income and 

monetary consumption as a measurement for welfare or poverty of individuals and 

social groups - and those who mainly focus on the social implications and consequences 

of development. For the latter the actual goal of development consists in 

creating an environment which can ensure a longer, healthier and more creative life. 

Human Development Reports have been issued by UNDP annually since 1990. 

In these reports the emphasis is placed not on human capital indicators 5 but on general 

human development indicators. Besides education, such indicators include primary 

needs, skills and opportunities. To fully develop their cognitive, technical and professional 

skills people must have adequate living conditions and full opportunities to 

enter the labour market without any discrimination in terms of gender, religion, race, 

etc. 

More specifically, a Human Development Index (HDI) 6 is calculated in the Human 

Development Reports. This index is a national measurement constructed on the 

average of three indicators, namely: life expectancy at birth, educational standard 

(adult literacy and registration to primary and secondary school) and per capita GDP 

with purchasing power being equal. 

Finally, the minimum objectives to define an acceptable human development for a 

country are indicated: life expectancy of at least 85, access to education for all and per 

capita annual income level of 100$. 

In addition, a Human Poverty Index (HPI) has been calculated in the Human 

Development Reports since 1997. The index measures whether individuals in a 

society have the necessary opportunities to conduct a long healthy life and enjoy a 

decent standard of life. In terms of quality, development is estimated from the poor 

people’s perspective using the parameters related to the degree of exclusion: short life 

(percentage of people who are expected to die before they are 40), lack of basic education 

(percentage of illiterate adults) and lack of access to public and private resources 

(percentage of people with access to health services, drinkable water and percentage 

of undernourished children under five years of age). 

Among the countries with the lowest HPI listed in the 1997 report are Niger, Sierra 

Leone, Burkina Faso, Ethiopia, Mali, Cambodia and Mozambique. Over 50% of the 

population is a victim to poverty in these countries. 

5 

Human capital indicators in a narrow sense are calculated including mandatory education, secondary technical education, number of 

students and scholars abroad, scientists and experts in research institutes. Accounting indicators relative to public education are also 

taken into consideration. 

6 

The main sources of data for HDI calculation are: United Nations Population Division, UNESCO (United Nations Educational, 

Scientifi c and Cultural Organization), World Bank, FAO (Food and Agriculture Organization), ILO (International Labor Organization), 

OECD (Organization for Economic Cooperation and Development), UNFPA (United Nations Fund for Population Activities), WHO 

(World Health Organization).


human capital 


The indicators presented in the Human Development Report are simple and easily 

understandable to politicians as well as to anybody who is interested in developmentrelated 

issues. They can be easily understood by non specialists and may direct “policy 

makers” attention towards human development issues. 

It should be noted that strong criticism towards this index is mainly technical in nature. 

In contrast, the technical value of these indexes which have helped spread a new idea 

of development is undisputed. 

2.5. Conclusion 

The awareness of the interdependence of rich and poor countries has never been higher 

“Development either becomes shared in common by every part of the world or it undergoes a 

process of regression even in zones marked by constant progress” (John Paul II, 2005). 

Economic growth of developing countries may turn into widespread welfare only if it 

is accompanied by the development of basic rights which all define a person’s dignity. 

The crucial importance of human capital requires a preliminary reduction of the most 

severe forms of poverty, access of all populations to the essential goods for health, food, 

hygiene and a lasting resolution of social conflicts and tensions. 

There is a positive correlation between growth rate and the following: school participation 

rate, indicators of the population’s health mirrored in life expectancy at birth, 

and openness to trade. Meanwhile, there is a negative correlation with: presence of 

weak governmental institutions, political instability and corruption, social tension and 

warfare, strong market distortions and in particular the spread of new technologies 

and deficiencies in schooling systems (IMF, 2000). 

To provide effective aid in favour of poor countries debt relief must be accompanied 

by international support aimed to introduce economic reform promoting integration 

in world exchanges. 

It is necessary to set up the conditions for developing countries to import new technology, 

increase the output of advanced goods on an industrial scale starting from the 

large availability of raw materials and natural resources - sometimes very abundant 

- and remove all those forms of exclusion of backward countries from multilateral 

agreements, the latter being recognized as one of the main causes of disparities in 

wealth distribution in the world. 

The implications for policies supporting developing countries are at least threefold. 

First, the effectiveness of development aid depends on the quality and quantity of 

resources which redirected from debt relief to measures fighting poverty. Secondly, 

the role of health systems and public institutions is vital in human capital formation 

needed to revitalise productivity and economic growth. Thirdly, tax reform is needed 

in order to make investment in human capital sustainable over time. 

Finally, in countries where the proportion of poverty exceeds 40% the only opportunity 

to fight poverty in the short term may derive from external, voluntary help carried 

out by civil society which aims to bring about more tolerable living conditions. Only 

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later will other issues such as long-term full participation in the economic development 

process be dealt with. 

It is high time for a public or civil effort to help cope with elementary humanitarian 

crises especially in the health and food sectors, to support minimum investments 

in health, education, infrastructures for water and sanitary facilities, giving new 

momentum to the public aid to development. To quote Pope John Paul II (Apostolic 

Letter Novo Millennio Ineunte), now is the time for a new “creativity” in charity with 

new bilateral and multilateral solidarity not only by ensuring that help is effective but also 

by “getting close” to those who suffer, so that the hand that helps is seen not as a humiliating 

handout but as a sharing between brothers and sisters. This means carrying on the tradition 

of charity which has expressed itself in so many different ways in the past two millennia, but 

which today calls for even greater resourcefulness (John Paul II, 2001). 

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DEVELOPMENT AID 

and Civil Society

human capital 



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One of the means by which public aid towards poor countries is implemented 

consists in the voluntary action of people and groups belonging to Non Governmental 

Organizations (NGOs). Such aid is mainly directed towards the basic needs of health 

and food, infrastructure and sanitation and waterworks services. 

The experiences of some NGOs formed out of civil society which deal with development 

aid projects with an emphasis on sustainability and human capital formation 

will be dealt with in this chapter. The case studies presented here place an emphasis 

on the aspect of cooperation for stimulating individual participation and the affirmation 

of civil society in determining the success of programmes for poverty reduction 

and development aid. 

In particular the experiences of three NGOs will be detailed below not simply to tell 

their stories but from a scientific perspective. Such a perspective is needed to assess 

the actual impact (action efficacy) of the projects and interventions implemented by 

the NGOs on the stakeholders, with the support of empirical data. 

Once the dimension or dimensions of the outcomes studied are identified it is very 

important to assess the absolute efficacy, also called impact efficacy, of initiatives 

and institutional projects. Efficacy is defined as the effect of an intervention on the 

outcome level compared with the outcome expected without that intervention. 

The statistical approaches considered for impact measurement of an intervention are 

basically twofold: 

1. In a cross-section logic (which does not entail outcome measurement before and after 

an intervention), impact assessment is conducted comparing the results of users 

which received the service or treatment considered (treated group) with those of a 

group of users with similar characteristics which were not treated (control group). 

Regularly there is a correlation between treatment (assignment) and outcome. 

Therefore it is apparent that impact assessment largely depends on the sampling 

process of the control group. The classical studies about impact assessment 

(Heckman and Rob, 1986; Heckman and Hotz, 1989) show that any possible nonhomogeneity 

between the two groups (treated group and control group) caused by 

unobservable variables - within observational studies where no matched sampling 

among the two testing groups occurred - might lead to selection bias due to a lack 

of randomization of the treatments assigned to the various individuals. 

2. Using a longitudinal estimate – where outcome is measured before and after 

the intervention is performed – no comparison between the treated group and 

control group is needed. It is sufficient to measure whether the intervention 

produced a significant outcome in the course of time in terms of growth and 

presence. If this approach is used the risk of selection bias is minimized as 

the individual characteristics which might have an indirect impact are virtually 

coincident in the two different moments in time. Therefore each statistical unit 

has a built-in control group.


human capital 


3.2. The Experiences of Non-Governmental Organizations 

Below are reported three examples of projects for human capital education and promotion 

started by AVSI, ICU and Monserrate respectively. 

3.2.1. AVSI’s OVC Project: Orphans and Vulnerable Children 

HIV/AIDS is a serious plight affecting mankind. In Sub-Saharan Africa alone there are 

more than 12 million youths aged 18 or less who have lost at least one parent to HIV/ 

AIDS and an incalculable number of children whose parents are sick and will in all 

likelihood die prematurely. In addition, the need for treatment for an ever-increasing 

number of sick adults along with a decrease in the number of healthy income-generating 

parents has resulted in an enormous burden for households and communities 

in supporting children. From a psychological point of view, being HIV positive can be 

intolerable in a context where all hope is seemingly lacking and, even worse, where a 

social stigma is attached to the disease. 

The OVC (Orphans and Vulnerable Children) initiative in Africa supports 12,400 children 

and 55,000 relatives. A special team almost entirely made up of women who 

live in Uganda, Rwanda and Kenya are implementing one of AVSI’s initiatives and 

giving rise to an innovative network of collaborations involving 120 local organizations. 

The project is addressed to vulnerable, fragile children in need who receive help 

and support from AVSI, in the country where they are living. Schooling and material 

support, educational and recreational activities, nutritional and health aid, highschool 

and university vocational training are among the types of aid provided. 

The main objectives of this project are: 

• to improve the living conditions of OVCs by taking them to the end of a school cycle; 

• to reinforce their families’ and communities’ capacities through various activities; 

• to stimulate the growth of local associations which carry out on-field projects; 

• to improve the quality and level of access to medical care services. 

The OVC project lasts four years and is funded by the distance support schemes of AVSI 

and American Development Cooperation agency (USAID) within the framework of a 

larger initiative against HIV/AIDS launched by President Bush. The American President 

promised that he would lead the fight against HIV/AIDS in 2003 when a plan called 

U.S. President’s Emergency Plan for AIDS Relief PEPFAR was launched - $ 15 billion to 

fight HIV/AIDS in over 120 countries worldwide. AVSI initiated a programme in the 

neediest areas of Uganda, Rwanda and Kenya on April 4th, 2005. The previous experiences 

and good practices tested beforehand are relaunched and various services are 

offered to orphans, vulnerable children and their own communities through a major 

operational network. At the end of the programme at least 12,000 HIV/AIDS orphans 

and vulnerable children, 50,000 vulnerable children and over 120 local communities 

will receive services to enhance their general living conditions. 

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Where 

To fully understand the scope of the project it is useful to provide an overview of the 

countries where such projects are implemented: Uganda, Kenya and Rwanda. 

• Uganda has a surface of 241,038 sq km and a population 

of about 27.5 m. The Human Development Index 

(HDI) for Uganda gives the country a ranking of 144th. 

The institutional structure of this African country is 

the result of the victory of the National Resistance 

Movement (NRM) guerrillas led by Museveni first 

over Milton Obote - the twice President of Uganda 

- and then over the military. After a constitutional 

review banning all limitations to only two Presidential 

terms, President Museveni won a second term at the 

general election of 2006. The situation is still unstable 

especially in the North of the country and operations 

against the rebels of the Lord Resistance Army acting 

in the areas on the border to Sudan are continuing. As far as the HIV/AIDS plague is 

concerned, estimates say that there are 530,000 people infected by HIV and about 2 

million orphans, that figure corresponding to 15% of young people aged 18 or less. 

It is estimated that there will be 3.5 million orphans in 2010. Relying on only scarce 

resources, those families which are hit by the virus do not have a chance to look after 

children’s education. Despite the huge scale of problems which must be dealt with 

in everyday life - e.g. human rights violations, warfare, etc. - Uganda is unique in 

respect to the other countries which are part of this project due to the strength and 

capacities of local service providers and of the community organizations. This project 

is currently being implemented in the Districts of Apac, 

Gulu, Hoima, Lira, Luwero, Masaka, Masindi, Mpigi, 

Mukono, Nebbi, Torero and Wakiso with approximately 

5,900 direct beneficiaries. 

• Kenya covers 582,646 sq km and has a population of 

about 33.5 m. The Human Development Index (HDI) 

gives Kenya a ranking of 154th. A former British colony, 

it obtained independence in 1963. Kenya spent ten years 

under the tyrannical regime of Daniel Arap Moi, but 

multipartitism was restored in 1991. Current President 

Kibaki declared a state of emergency in 2006 in some 

provinces struck by drought and famine. Estimates claim 

that there are approximately 2 m people infected with HIV/AIDS and about 650,000 

orphans. AVSI has been working with local partners in Kenya since 1986 mainly in the


human capital 


urban areas close to Nairobi. This project is operating in Nairobi slums and in the poor 

suburban areas of the city, in some areas of the Meru region, Nandi district and Mulot- 

Narok district in the Rift Valley, with over 2,900 direct beneficiaries. 

• Rwanda covers 26,338 sq km and a population of 

about 9 m. The Human Development Index (HDI) gives 

Rwanda a ranking of 159th. Sadly best known for the 

1994 genocide which caused nearly one million dead and 

two million refugees, Rwanda is now going through a 

dialogue process in a peaceful climate. The only exception 

is represented by the borders on the Democratic 

Republic of Congo where the rebels of the Democratic 

Forces for the Liberation of Rwanda (FDLR) are still 

fighting. President Kagame was elected in 2000 and 

confirmed for another term in the 2003 general election. 

As far as the HIV/AIDS plague is concerned, estimates say 

that there are 250,000 people infected and about 6130,000 orphans, that figure corresponding 

to approximately 17.5% of young children aged 14 or less. AVSI has been 

working in Rwanda since 1994 adopting a more straightforward approach compared to 

the other two countries in order to provide treatment and services to OVCs, given the 

relatively modest capacities of the organizations of civil society and institutions in the 

field of health. Some activities have been implemented in the Provinces of the East, North 

and South, with 2,200 direct beneficiaries. 

These three countries have a great deal in common. They are located in the so-called 

“Africa of the Great Lakes”, have a very low Human Development Index and are plagued 

by extreme poverty, very low life expectancy (47 years of age for Uganda and Kenya, about 

44 for Rwanda), a very high infant mortality rate (Kenya 120 ‰, Uganda 138‰, Rwanda 

203‰) and by widespread despair in large sections of the population. To this can be added 

a persisting state of warfare and guerrilla conflicts which affect some areas of Uganda and 

Rwanda. 

The activities 

The activities and services developed, enhanced or replicated in the course of the 

project are a response to real life situations encountered by OVCs in these three countries. 

The whole programme is based on a combination of direct and indirect forms 

of assistance. Direct assistance is supplied through locally qualified partner organizations 

and includes access to schooling, the supply of teaching materials, after-school 

programmes, training courses, health treatment and recreational and psychological 

support. Indirect assistance consists in supporting quality education, promoting 

income generating activities (IGAs), promoting community projects and awareness 

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campaigns and supporting families - with literacy programmes for adults, supply of 

water tanks and aqueducts in some communities, housing rehabilitation. Local partners 

and networks also receive training courses and consultancy mainly in the branch 

of management and business administration with the aim of resolving the problem of 

an institutional and operational weakness while enhancing its efficiency and effectiveness. 

Teachers and social workers can benefit from cycles of dedicated meetings with 

the purpose of improving their capacity and enabling them to provide quality services 

to direct beneficiaries. 

Identifying the children to be part of the programme is the responsibility of the local 

partners who work in close collaboration with the local authorities. There are no preestablished 

categories of vulnerable children, so AVSI must work closely with local 

partners and social workers in order to identify and update the selection criteria and 

characteristics of the intervention within each single community. 

During the second six-month period of the programme, AVSI provided quality services 

to OVCs who are part of the programme and increased their number in each country, 

in accordance with the budget plan submitted. In Uganda and Kenya AVSI is mainly 

working in collaboration with local partners and committed to building their organizational 

capacity as well as to enhancing their selection processes for children. It has 

been noted, however, that the quality of the work performed by these local partners 

is still poor and that AVSI’s support is absolutely crucial in order to make progress 

with on-the-field missions and individual training courses. Some partners still find it 

difficult to use all descriptive and financial reporting tools required. It may be that the 

inadequate resources available - in some rural areas even electrical power is lacking 

- slow down their work and undermine efficiency. A new administrative structure set 

up in January 2006 in Rwanda increased the number of provinces entrusted to AVSI 

- from two to three -, which resulted in the need to enter into new agreements with 

all districts and at the same time extending the waiting times for each beneficiary to 

obtain support. 

The low level of preparation of teachers is a common issue in the three countries and 

also affects the level of performance of vulnerable children which encounter povertyrelated 

personal and familial problems and post-trauma disorders caused by events 

like the Rwandan genocide and/or the death of their children caused by HIV/AIDS 

in all three countries. It is difficult, but essential, that teachers are trained on psychosocial 

topics and that they improve their qualifications generally. 

In April 2006 the programme was updated as follows: 

• Uganda, the project continues to be successful with an important collaboration 

between local partners and an increasing emphasis placed on the abilities to develop 

and harmonize different projects. The instability of the North makes it hard for children 

to receive proper training and to develop some of the activities of this project. 

The Ugandan Government is now implementing a National OVC Policy and AVSI is 

making an effort to complement this work and fulfil the Government’s demands. 

• Rwanda, a new administrative structure was set up by the Government, as seen


human capital 


above, which has increased the administrative requirements of the project in the 

country and caused other problems due to a decentralization of governmental 

services. Operationally speaking, AVSI has achieved good results in the support of 

IGAs, the promotion of recreational activities and awareness raising campaigns. 

• Kenya, the work was mainly focused on the capacity building of local partners so as 

to enable them to provide quality services and manage the financial and administrative 

aspects of this programme. AVSI is still committed to continuing their engagement 

in this respect. 

The challenges faced today are: coordinating the programmes of the three countries 

and establishing a framework for stakeholders in each country; enhancing the capacities 

of local partners, in particular of their financial reporting and information schemes; 

harmonizing a selection process to identify vulnerable children in the various contexts; 

dealing with the structural weaknesses of the educational system and the low level of 

preparation of teachers. 

Among the numerous successes achieved, mention can be made of the following: 

increased responsibilities of households and communities in looking after OVCs 

(throughout the three countries); resources and partnerships acquired such as Memory 

Project and other international donors: WFP (World Food Program) for food aid and 

UNICEF for a psycho-social training of teachers in Rwanda; successful awareness raising 

campaigns and recreational activities across all districts where AVSI acts in Rwanda. 

Achievements and Conclusions 

The belief that education represents one of the main resources for an individual’s and 

a community’s growth and development guides the whole work of AVSI in all projects 

concerning formal and informal training. Allowing children to enter or re-enter 

the school system is among the key objectives of the OVC programme. Education 

represents an opportunity for young children to build their future, increase and 

develop personal skills and re-evaluate their behaviour and lifestyle. If, for instance, 

correct values are transmitted or a different public awareness is raised, this helps 

young children to change their living habits and prevent HIV transmission. At the 

end of the first year of the project research was conducted by the Foundation for 

Subsidiarity on behalf of AVSI. Two different approaches were used in this piece of 

research: a qualitative and a quantitative one. The qualitative approach employed 

interviews of the local project managers combined with an analysis of the reports 

prepared by local operators on children. The quantitative approach employed a 

structured questionnaire administered to sample children chosen through a simple 

random method and consisting of 1,220 units out of a total of 4,458 orphan children 

supported by the project. The questionnaire investigated the child’s living and 

familial situation through 29 questions, 95 sub-questions and 322 variables. 

The first batch of tests concerned children’s identification, the second concerned their 

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physical and behavioural characteristics, their lifestyle and their school life (i.e. regular 

school attendance, participation in extra-curricular activities, student performance and 

the situation activities school buildings and facilities). The third batch investigated the 

familial situation and the fourth the state of need. 

The questionnaire examined many aspects of children’s lives. With reference to the 

various sectors, different indicators were developed such as those concerning the children’s 

health, economic situation of their families, etc. Among these indicators is the 

School Performance Index. As far as the results of performance and activities are concerned 

a few significant items are reported below. 

Firstly, school attendance was regular in 94.5% of cases whereas irregular school attendance 

was rare (in 5.5% of cases, only in Rwanda exceeding 8% of cases). Differences in 

gender, age and residence in or out of urban areas were not significant. Class participation 

and attention during classes were good except in 7.4% of cases. An important feature 

was that of the scores obtained. As can be seen, a quarter of the children supported 

through the OVC project fell into the top 20% of the class. Fifty percent of them fell into 

the next 20% and only 12% fell into the bottom 20% of the class (Table 1). 

Attendance 

rate 

% % Value % Cum. 

Value 

assigned 

Top 20 280 23.39 25.06 25.06 5 

From 21 to 40 272 22.72 24.35 49.41 4 

From 41 to 60 250 20.88 22.38 71.79 3 

From 61 to 80 177 14.78 15.84 87.64 2 

From 81 to 100 138 11.52 12.35 100 1 

Total 1,117 93.31 100 -- 

No answer 80 6.68 -- -- 

Total 1,197 100 -- -- 

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(Tab. 1) 

The School Performance Index (SP-I) was conceived on the basis of three variables: 

the position within the class where the children were classified, their participation and 

their behaviour. As can be seen from Table 1 a 5 value scale was assigned to children 

classified in very good positions - that is to say, in the top fifth of the class - 4 was 

assigned to those classified in a good position, 3 in average position, 2 in a bad position 

and 1 in a very bad position. The attendance rate was classified as follows: 5 for a 

good level of activity attendance, 3 for a sufficient attendance level, 1 for poor attendance 

level. Depending on the score obtained, children’s performance can be assessed 

on a five-level scale (from very bad to very good). This index highlights that over 58%


human capital 


of children have very positive values and only 9.2% fall into the worst class. 

Attendance, behaviour and attention - collectively summarized in the SP-I - can be 

viewed as performance indicators. These variables are influenced by many factors. 

Nearly all of them are included among the objectives of this programme. 

The activities for 2006 aimed at enhancing the quality of education, with their corresponding 

input, output and outcome, are reported in the table below. 

ACTIVITY INPUT OUTPUT OUTCOME 

2.1 Providing 

the basics needed 

to go to school: 

tuition fees, uniforms, 

textbooks, teaching 

materials (direct 

assistance) 

Number of organizations 

receiving loans 

to look after OVCs 

10,470 children, 

whose school tuition 

fees were paid 

and receiving the 

necessary 

materials to go 

to school before 

October 2006 

Higher rate of OVC 

attendance to school 

% of OVCs admitted 

to a higher schooling 

level Number of OVCs 

with a secondary 

qualifi cation % of 

OVCs fi nding a paid 

job after the secondary 

qualifi cation 

2.2 Enhancing 

learning skills of 

OVCs 

with appropriate 

after-school 

programmes 

(direct assistance) 

Number of local 

partners offering 

after-school 

programmes 

Types of after-school 

programmes offered 

1,130 OVCs 

participating 

in after-school 

programmes 

Increased school 

performance 

of OVCs due 

to the after-school 

programmes 

followed 

2.3 Improving 

education quality 

by renovating school 

buildings 

and facilities 

and by providing 

teaching materials 

and support (direct 

assistance) 

2.4 Supporting 

vocational training 

courses and 

internships 

addressed to OVCs 

(direct assistance) 

Number of buildings 

renovated 

Number of teaching 

materials and 

support delivered 

Number of local 

partners providing 


and internship 

opportunities 

to OVCs 

33 schools renovated 

or provided 

with teaching aterials 

before October 2006 

13,616 children 

are benefi tting 

from renovated 

schools, adequate 

teaching materials 

and teaching 

support 

363 OVCs receiving 


courses and internship 

Types of vocational 

specializations 

received by OVCs 

% of OVCs 

acquiring 

a secondary 

qualifi cation 

and fi nding 

a job 

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To give an example, another table is shown below to indicate the standing of the 

Uganda project at the end of the second six-month period. 

OBJECTIVES/ACTIVITIES 

OUTCOME 

Strategic objective 1: reinforcing the capacities of OVCs, their families and communities 

Activity 1: arranging BST (business skill 

training) and supporting IGAs (income generating 

activities) for OVCs and their families 

133 families supported by IGAs 

Strategic objective 2: supporting a quality education 

Activity 1: providing OVCs with the basics to 

attend school 

Activity 2: arranging extra classes 

Activity 3: supporting vocational training 

courses and internship activities 

Activity 4: renovating schools and/or 

providing teaching materials 

5,707 OVCs receiving teaching materials so 

that they can attend school 

600 OVCs participated 

213 OVCs participated in vocational training 

courses 

20 schools supported 

Strategic objective 3: improving health conditions 

Activity 1: supporting the access to health 

service, medicines, medical visits and 

preventative measures 

Activity 2: providing food aid 

Activity 3: supporting awareness-raising 

initiatives of the communities through IEC 

materials 

5,920 OVCs showed improvements in their 

state of health 

120 OVCs received better food aid and support 

2,000 people made aware 

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Strategic objective 4: addressing psycho-social needs 

Activity 1: supporting recreational and cultural 

activities 

Activity 2a: providing material support to 

enhance psycho-social well-being 

Activity 2b: providing psychological support 

through regular “follow up” visits 

1,000 OVCs received “protection” 

600 OVCs received psycho-social support 

5,920 OVCs 

3,000 home visits 

2,700 school visits 

2,500 in-offi ce contacts


human capital 


Strategic objective 5: supporting the basic organizations of local communities 

Activity 1: providing material and fi nancial 

support to local partners looking after OVCs 

Activity 2: promoting adult literacy 

programmes 

Activity 3: arranging regular meetings 

with local partners 

Activity 4: supporting the projects of local 

basic organizations 

37 local partners supported 

2 NAW- KIR partners 

400 benefi ciaries 

1 meeting 

37 partners involved 

4 projects 

100 benefi ciaries 

Strategic objective 6: building the skills of local partners 

Activity 1: training teachers/social workers 

improve the support provided to OVCs 

Activity 2: increasing the skills of local 

partners in terms of management and 

administration 

8 meetings 

90 social workers trained 

37 local partners involved 

37 people trained 

As can be seen from the Tables and from our reflections above, looking to education 

entails considering the opportunities to attend school, improve the school 

buildings and facilities and to give support in the raising of vulnerable children 

and adolescents. 

More generally, different activities in the sectors of health, informal education, 

and awareness-building within the communities are included in the OVC project. 

Due to its holistic approach, this project ensures support to the most vulnerable 

sectors of the population. If education and human capital are seen in terms 

of a person’s global human development, accompanying a child into adulthood 

involves helping that child grow up and improving the growth of communities 

through all project activities. 

If we restrict ourselves to improving children’s training and schooling , then we 

will not help children to grow up. Increasing human capital means nothing less 

than forming people to function as individuals. As Luigi Giussani claimed, it 

means helping people cope with reality, introducing them to real life, accompanying 

them on their life choice and making them more aware of their own capacity 

and potential. 

3.2.2. ICU: Kinal Project in Guatemala 

ICU was established in Guatemala in 1989 and since then has been gathering 

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experiences and information to deepen their knowledge of Guatemalan situation 

and understand the potential for development. 

In particular, it emerged that there was a strong demand for technical training. 

Technical training was in high demand by both extremely poor people, those 

who often live in the most marginal areas of cities and regard technical training 

as the only type of access to more qualified, better paid jobs and local companies 

where qualified staff are always sought after. 

During the subsequent study missions, contacts were made with a local agency 

named Kinal which has been working in the field of technical training for the 

benefit of the poorest people in marginal areas of cities for 30 years. 

All these contacts together with further in-depth studies of Guatemala’s 

training sector and labour market have enabled ICU to prepare a project. 

The project was submitted to the approval of the Ministry for Foreign 

Affairs in 1992. 

Kinal Centre was set up in 1961 as an educational not-for-profit agency based in the 

suburbs of the capital city and began its activities offering a series of brief training 

courses targeted to workers. In 1984, a group of promoters of the Kinal activities 

was established with the purpose of raising the resources to build the Centre’s main 

offices and expand its range of action. 

Kinal Centre is currently made up of three different components: a not-for-profit 

Foundation, a Centre for Human Promotion and Social Development and a 

Charitable Centre. 

The Centre for Human Promotion and Social Development provides neighbourhood 

medical and legal services to the inhabitants. There is also a centre providing educational, 

technical, industrial, cultural and sports activities. The Charitable Centre consists 

of professionals, entrepreneurs and traders who have given their contribution to the 

development and growth of the Educational Centre over the years and was set up with 

the purpose of supporting the Foundation. 

In the Maya language Kinal means “the place where fire is born”. More than 10,000 

people attended the centre’s activities from its foundation in 1961 to the present day. 

It should also be noted that Kinal has always cultivated a strong relationship with the 

business world, which enabled the managers to prepare the contents of the courses to 

meet the needs of the industrial world. 

This strong relationship with the business world has also enabled the country to offer 

scholarships to students. 

The tuition fees for registration to technical courses for workers are usually paid by the 

companies themselves. All youths attending the educational Centre benefit from a scholarship 

which covers about half of the registration fees. 

Looking to the social and educational role of Kinal, the main objective of its educational 

activity consists in training responsible people capable of doing their job with professional 

competence and maintaining a strong spirit of service towards their community of origin.


human capital 


Where 

Using this strategy Kinal plays a crucial role at a social level 

both in the Landivar colony (where it is based) which is 

inhabited by about 20,000 and 3,800 families and in the 

surrounding neighbourhoods such as colonies of Verbena, 

Quinta Samayoa, Castillo Lara, el Guarda Viejo, with a 

combined population totalling 100,000. An indication of 

the great popularity which the Centre is acquiring is shown 

by the number of young people travelling from some cities 

close to the capital city such as Chimaltenango, Antigua and 

Coban - sometimes over an hour’s bus journey away - has 

been increasing over the last few years. 

The Activities 

The general objective of this programme consists in supporting the economic, social 

and cultural enhancement of a vast majority of the population currently living at the 

margins of civil society in extreme poverty in the sub-urban surroundings (the socalled 

Zone 7 of Guatemala City). This cooperation project sets out to bridge the 

gaps in the vocational training sector by expanding the technical and professional 

training activities of Kinal Centre. The general objective was achieved by creating a 

vocational training centre for electronic and electrotechnic technicians in the Zone 7 

of Guatemala City, one of the largest and most inhabited areas of the capital city. The 

vocational training centre is located on a portion of the lands where Kinal’s main 

offices are currently based. 

The programme lasts three years and consists of two separate phases. The expected 

outcome of phase one (lasting one year) was the following: 

• building new facilities to host classrooms and labs; 

• planning and initiating electronics and electrotechnics courses; 

• setting up, installing and starting up the electronics and electrotechnics 

and electrotechnics labs; 

• training local teaching staff. 

The following outcome was obtained: 

1. New buildings with an overall surface area of 1,224 sq m (classrooms and labs) were 

built to host electronics and electrotechnics courses. 

2. The following professional profiles were restructured: Technician in industrial electricity, 

technician in industrial electronics, technician in computer system electronics, 

computer technician. 

3. All pieces of equipment indicated in the project were supplied and installed. 

4. A vocational training programme was launched for local teachers with six scholarships 

of five months each - i.e. two per year for each year of duration of the programme). 

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The main part of the training in each scholarship was carried out at the Centro de 

Capacitación Técnico empresarial del Instituto Tecnológico Centroamericano ITCA - la 

Libertad, El Salvador. 

The outcome attained on the basis of the evaluations made by Kinal managers are more 

than satisfying. 

Particular attention was given to training the teachers of the school. After devoting the 

first two months of their contract to testing the new equipment purchased and in order to 

provide adequate training to the lab manager in their proper usage and maintenance, the 

Italian staff initiated an internal training programme for school teachers. The method used 

was the following. A workshop was conducted to present and test the new equipment with 

theoretical inputs and a thorough study of their use in teaching in institutional courses. 

Step two of the project lasted two years and saw the thorough implementation of the new 

vocational training centre, thus making it possible to check the quality of courses and 

equipment. 


Assessing the results of a training institution is a challenging task. Considering the marks 

scored at the end of the school cycle or else counting the number of students who did 

not drop out is not sufficient. What should be done is to consider the results achieved by 

former students once they have entered the labour market and how they can apply the skills 

acquired. 

The results can be classified into “outputs” - i.e. short-term achievements - and “outcomes” - i.e. 

middle and long-term achievements. 

The assessment model proposed takes the efficiency and effectiveness variables into account 

together with the modes in which the teaching and managerial processes are conducted. 

The provenance of the participants on the training course are also taken into account. The 

assessment process of the training institution is completed and fit for the purpose only if the 

variables above are integrated. 

To assess the Kinal situation, its strategy and capacity of achieving its objectives, and its 

strengths and weaknesses, research has been conducted through: qualitative analysis - e.g. 

interviewing executive staff, entrepreneurs, performing sessions with teachers, parents, 

former pupils, the Board of Direction and Executive Board -, quantitative analysis - a questionnaire 

directed to the pupils of the educational centre - and financial analysis - studying the 

financial records, internal indicators, forms and other documentation. 

The survey has disclosed that buildings are not in bad condition, unlike equipment and 

furniture. 

As far as the structural efficacy of the building of Kinal Centre is concerned, this building is 

entirely used to host morning and afternoon courses (90% of all places available used). 

Given the space available, only a limited increase in the number of pupils per class can 

be envisaged. Things are better off for the Technical School where the average number of 

pupils per class is lower.


human capital 


Nearly all interviewees have reported that Kinal is equipped with good equipment and 

machinery. The only problem lies in the computing workstations which are not adequate 

for multimedia training or for an Internet connection. The average level of satisfaction for 

equipment is good although there are variations from one course to the other. 

Also parents express a positive judgement on the fact that textbooks and teaching materials 

for practicals are included in tuition fees. 

A problem which has often arisen is that although machinery and equipment is generally 

in good working order, such equipment is not used to its full potential by teachers as they 

are not capable of using it correctly. 

In terms of teaching and educational activities, there is a good relationship between students 

and teachers. Pupils appear to be happier about the level of teaching acquired than of their 

teachers’ availability. It should be pointed out, however, that this aspect does not have any 

negative scores. There is also a positive relationship between parents and teachers. 

Teachers with a qualification for teaching amount to 28% of the total. Teachers are not 

always strongly motivated. A reason for this may lie in their salaries which they do not 

consider adequate. Another issue lies in the lack of consistency between social compromise 

and an increase in tuition fees. 

The high number of students at the Educational Centre (CET) does not allow for an indepth 

work on spiritual education, which is definitely stronger in the Technical School. 

Let us focus now on the output. CET has reported higher registration rates and lower 

dropout rates over the last few years. The Technical School, on the other hand, has 

reported a steady number of registered students with varying dropout rates. This 

output can be explained by the general economic situation and general availability of 

work in companies. 

Nearly all students at the Centre would like to go on to university. Most of them would 

like to find a job while studying at university. According to the press, those students 

who try to win access to San Carlos University succeed and score better than the 

students coming from other schools. 

As regards the alumni, they often keep in contact with their teachers and with their 

fellow students. Some of them founded a Kinal Centre Alumni Association for the 

purpose of helping newly registered students. 

The entrepreneurs interviewed stated that they are happy with the level of the 

Technical School courses. This judgement was stronger for those companies familiar 

with Kinal Centre. On the other hand, it appears that the efforts made by the School 

to expand their range of action to other companies and the targeted participants is not 

sufficient. 

However, all things considered in the Centre assessment, it is apparent that Kinal 

Centre is capable of achieving its objective. In a few words, Kinal Centre appears to 

have expanded a lot in the last few years and to have widened its action and improved 

the quality and image of its training. Despite this, the current working formula is not 

sustainable over the mid term due to the difficulties in achieving an economic balance 

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combined with a tendency to move away from the Centre’s mission. 

The quality of the courses offered implies higher management costs. This might lead 

Kinal Centre away from its mission which consists in providing quality training to 

youths and adults with limited financial means. The assessment of training processes 

has highlighted the risks and opportunities of the various possible choices and has 

provided a complete picture to the Centre managers which they refer to when making 

choices in the future. The real challenge consists in combining high quality courses 

with high management costs while continuing to target financially disadvantaged 

students. The longer Kinal Centre manages to keep this delicate balance intact, the 

more the Centre’s objectives will be met. 

On the basis of the conclusions drawn and following the assessment process carried 

out on the project, ICU has initiated a new programme funded by Lombardy Region 

with the purpose of setting up a pre-secondary technical training centre for youths in 

need and to make it possible to requalify with a technical education to improve the 

socio-economic standing of the population. The programme began in 2006 and will 

last two years. 

3.2.3. Monserrate: St. Riccardo Pampuri Centre of Bogota in Colombia 

The project called “Centre for Global Education St. Riccardo Pampuri” represents an 

extremely important example of Monserrate’s method. 

The project represents a real “programme” as it incorporates various, multifaceted 

projects which are developed with a systematic logic and represent a fundamental 

approach towards reconstructing the social fabric of one of the most violent and 

impoverished areas of Colombia’s capital city. 

Starting from socio-educational activities, the Centre promoted the reconstruction of a 

network of social and familial relationships which had been severely affected by poverty 

and marginalization. Today it represents a Urban Human Development fulcrum and 

is regarded by local authorities as a “model for intervention in the suburbs of large 

metropolis in developing countries”, a tangible experience in an individual’s global 

education and a proactive factor for social and economic development of an area. 

The activities of the Centre began in 1996 and included an after-school service, followed 

shortly afterwards by a primary school. The deep rooted needs of the area - 90% of the 

children are either malnourished or undernourished - have given rise to a programme for 

food recovery with a local canteen where meals are specifically planned by nutritionists and 

a Centre for Health Promotion and Prevention offering medical assistance to school and preschool 

infants (aged 3 to 11) and the families living in the area. 

Young people need adequate training to find a job. This is the factor driving the initiation of 

many training courses which have been organized over the years (for bakers, tailors, carpenters, 

electricians etc.). This has enabled many young people to enter the labour market and 

start up micro-entrepreneurial businesses.


human capital 


The Centre has become a reference point, a place where you can meet people to help you 

out with the primary needs (food, education, hygiene), and provide a global educative work 

to restore personal dignity and provide a sense of hope. 

The existence and the activities of the St. Riccardo Pampuri Centre is a concrete example 

of effective, long-lasting human development. Numerous important projects implemented 

by Monserrate are hosted at the Centre. All projects continue well beyond 

their natural expiry date. 

The Centre is notably different from many other projects for developing countries through 

some of its key methodological innovations which characterize Monserrate’s action 

worldwide: 

• First, the primary importance placed on education and literacy. The most appropriate 

response to the dramatic needs of the area was the creation of educational works 

(schools / after-school services / training courses) which could reconstruct interpersonal 

relationship networks within families and communities while educating 

individuals; 

• Second, an approach targeted at individuals as a whole without neglecting or 

underestimating nutritional and medical needs, whether they be big or small; 

• Third, the setting up of lasting work as a reference point for those living there, 

a place where people can meet, come together and find permanent education 

possibilities; 

• Fourth, training local people to be capable of running and organizing the Centre 

in the future. 

These factors have been fully implemented in St. Riccardo Pampuri Centre. After 12 

years the Centre is now entirely run by Colombian staff and is regarded as a model for 

other similar centres across the world. 

Where 

Santafe de Bogota is the capital city of Colombia and has a population of about 

8,000,000. It is situated at 2,600 metres above sea level and is surrounded by the 

Cordillera of the Andes. 

Santafe de Bogota has a large number of suburban neighbourhoods mostly inhabited 

by people who have fled the countryside and illegally occupied the lands either 

at the margins of the city or on the slopes of the mountain. Slums have been built 

where people live in extreme poverty. In most slums water, lighting and drainage are 

lacking. 

One of these suburbs is Barrio Juan Rey. It is situated in the South-Eastern area of 

the city, San Cristobal, Zone 4, 3,000 metres above sea level. Approximately 300,000 

people live there. The inhabitants of the slum live in extreme poverty. Hygiene and 

health are extremely poor. Crime rates are very high. Malnutrition and undernourishment 

are widespread problems. 

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St. Riccardo Centre was founded in 1996 inside Barrio Juan Rey in the uptown, abandoned 

area of San Cristobal, one of the poorest and most violent in the city. 

The activities 

More than 1,000 people take part in the Centre’s activities each day. Similar projects 

have been or are being implemented in other cities in Colombia. 

The building has a surface area of 8,000 sq m and includes: a crèche, a kindergarten, 

a primary school and an after-school service; vocational training courses; 

an All-Purpose Centre for Health Prevention and Promotion; a canteen where 

over 900 meals are prepared every day; various initiatives for spare-time social 

activities. 


Given the wide range of activities developed in the 

programme of St. Riccardo Pampuri Centre a choice has 

been made out of the most significant projects implemented 

for the purpose of this publication. 

An important project which best exemplifies the action 

implemented by the Centre comprises medical, nutritional 

and educational support provided to local children 

along with vocational training courses targeted to 

their mothers. 

Some courses which are referred to here include those 

aimed to “Professional qualification of youths, mothers, breadwinners in Zone 4 San 

Cristobal South, Bogota”. 

The courses set out to promote professional and human development of women and 

young people of San Cristobal, providing them with the professional skills necessary 

to enter the labour market so they can provide for their families. The courses provide 

specific technical skills and basic administration and accounting instruction. 

The overall figures concerning job placement after the end of the courses are good 

with 69.4% of the students contacted after the end of the course having either found a 

job or decided to continue studying in our Centre or else they have started up business 

which in some cases mean that they employ their own staff. The importance of these 

data is even more apparent if we consider that they refer to a social context where the 

unemployment rate stands at around 80% of the population. 

The Centre is a urban human development fulcrum in Bogota and has had a strong 

impact on the region by improving the living conditions of the local community in a 

context of urban decay. In this place children can be taken off the street and receive a 

full education. Their families can receive support in learning their educational role and 

abandoning violent methods to understand how to guide youths in their lives. Young


human capital 


people can have an opportunity to build their own future. This is a completely new 

perspective in the middle of an area where 300,000 people live. 

1,000 children and young people who pass through this Centre every day are a sign 

of a new hope. 

The Centre is built around an experience of participation, where this meeting place 

also offers the chance for active involvement in the local community by contributing 

to the running of the Centre. It should be noted that the staff employed consist entirely 

of members of the local community who were initially trained by Monserrate. Their 

involvement makes the project globally sustainable. 

In addition, there is also economic sustainability attached to this project. 

The Centre is supported by other institutions such as Bogota Food Bank, national 

institutions like Instituto Colombiano de Bienestar Familiar (ICBF), local foundations 

supporting infancy and local fund-raising activities. 

Other NGOs and international institutions also determine the sustainability of this 

project. 

Finally, Monserrate has started initiatives to ensure the present and future sustainability 

of this work. The profits of the two initiatives are already supporting the Centre: 

1. The initiation of a distance adoption / foster programme; 

2. The institutional support of “Gimnasio Alessandro Volta”, a popular bilingual school 

in the city of Bogota, which provides financial backing to the St. Riccardo Centre. 

It appears that the long-term perspective of the Centre will be consolidated in terms 

of financial sustainability. Another strength lies in the presence of a steady on-field 

executive team and a company structure ensuring that it is properly run (the Centre is 

based on the model of a Foundation with all possible statutory bodies). 

The traditional stability over the course of many years means that the natural turnover 

of staff should be easy to overcome. The newly hired staff are integrated into a sound 

institution which has a strong identity, without causing any insufficiencies or distortions 

from a socio-educational point of view. 

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