Capital has significant impact on economic development which involve structural transformation. In developed countries usually the rate of capital formation is 10 per cent or above while the rate in developing nations is as low as 5 per cent including foreign investments which is insufficient so, countries will take various domestic measures to mobilize labour for capital formation.
Theories suggest that economy need a big push to remove the economic stagnation and low capital formation which cause vicious circle of poverty. The supply of capital depends on ability and willingness to save while demand of capital is governed by incentives to invest but LDCs always have low capacity to save results from low productivity so, in order to reduce capital shortage and saving gap real resources must be released for investment which as a necessary action. In addition, inefficiency in the use of capital is also a cause of low development as poor physical capital have low absorption capacity so, LDCs are in need of high supply of trained manpower. It is identified from developed nations that, development depends on productive human agents who through their knowledge, better health, nutrition and increase in skills raise total factor productivity so, to improve human capabilities, countries need to improve health, make expenditures to improve life expectancy, on the job training, education, adult literacy programs and migration of individuals to changing opportunities and treat human resource as an asset. This asset is a combination of different factors like improvement is quality by education and on the job training, reallocation of resources from low productivity to higher by either through normal market forces or by reducing barriers or distortions, exploitation of economies of scale and by improving the ways of combining resources to produce goods and services.
Countries effective potentials for rapid productivity growth are not only determined by the gaps in level of technology, capital intensity and efficient allocation but it is also subject to market size, relative factor supplies and income constraints which restrict the ability to finance, organize and operate kind of enterprises required to exploit the technologies on frontiers of science and engineering so collectively, all elements determine country’s effective potential for productivity growth.
For economies to be more productive all types of capital are crucial as social capital shape up the rate of accumulation and quality other types of capital. When social capital improves management of economy than it increase the savings and other types of capital and efficient allocation of capital leads to higher productivity and economic development but the most important aspect which is crucial for poverty alleviation is definitely human capital and to ensure inclusiveness in growth, it is essential to focus on human capital models that incorporate the components of poverty reduction so, it is recommended that:-
Government should increase its monetary budgets on education for obtaining learning materials, ensure a conducive environment for teaching, and enhance quality and informative learning scenario, which will, therefore, lead to excellent skill acquisition and self-employment. The over-dependence on physical keeps the doors locked in front of diversification strategies and causes less concentration on economic activity therefore, we should look into other sectors and try and increase the level of economic complexity.
The government should increase the health care facilities and motivate the health personnel with reasonable remuneration to guarantee an increase in productivity in all the various sectors of the economy. The government should also enhance the standard of education by motivating and retraining the teachers at all levels while increasing educational infrastructural facilities because low-level investment in human capital development leads to a problem of the resource curse, and this tends to have less economic growth and worse development outcomes therefore, there is a need to link the growth attained with sound economic policies as well as the capacity to implement those policies to translate them into better performance of alleviating poverty. Thus, since human capital is an essential key determinant of improving economic growth, the quality of human capital should be invested in education and health, improving the living standard of people and society’s welfare.