Human Capital, Productivity, and Structural Transformation

Abstract

This paper revisits the role of investment in human capital in closing the productivity gap, boosting labor productivity growth, speeding the rate of structural transformation, and ultimately creating high-quality jobs in Africa. Analysis of detailed sector-level historical data on employment, value added, and human capital shows that investment in human capital is significantly and positively associated with the rate at which countries close the labor productivity gap between agriculture and the rest of the economy. Investment in human capital also significantly increases labor productivity within sectors and the speed at which labor is reallocated from low-productivity to high-productivity employment. In line with other research on this topic, the findings from this study underscore that Africa is ready to benefit significantly from improving human capital through investments in education, health care, and nutrition.