Human capital and Indonesia’s economic development

Studies of countries’ growth trajectories indicate that a key factor in managing the transition from middle-income living standards to high-income ones has been human capital formation. A 50-country study by Hanushek and Woessmann (2008) found that, controlling for GDP per capita and levels of schooling in 1960, those countries with higher skills experienced per capita income growth rates that averaged two percentage points higher over the next 40 years. They also found that skills, as measured by performance in international assessments, played a role in sustaining strong economic growth, after controlling for differences on such acknowledged determinants of growth as trade openness, security of property rights, fertility and geography.