Human capital and economic growth goes hand- in-hand. Human capital formation accelerates the economic growth whereas economic growth in turn facilitates human capital formation. The inter¬relationship between economic growth and human capital formation can be explained as follows
(i) Increases the productivity of physical capital:
Physical capital refers to the stock of produced means of production. It consists of production plants, machines, tools and equipments. The skilled workers handle the productive assets in such a manner that these not only enhance their productivity but also lead to an efficient utilization of the physical capital. When the productivity increases, the pave of growth is automatically accelerated.
(ii) Innovation of skills : An educative person
is more productive and skillful. He has the- potential to develop new skills and innovate new techniques that can be more efficient and productive. Greater the number of skilled and trained personnel, greater will be probabilities of innovations.
(iii) High participation rate and equality: Human capital endowed with higher technical skills and innovating power is more productive and efficient. This increases the participation of more people in the process of economic growth and development. Higher the participation rate, higher is the degree of social and economic equality.
Thus, we can conclude that human capital and economic growth goes hand-in-hand. Human capital formation accelerates the economic growth whereas economic growth also facilitates human capital formation.