Macroeconomics
1
Human Capital, Technology and Institutions
Same Big Question: Why are
some countries rich and others poor
— even after decades?
Session 7: Growth facts
Session 8: Physical capital
accumulation
Session 9:
Beyond machines → people, ideas,
and rules
Learning Objectives
should be able to:
Explain sources of long-run
productivity growth
Distinguish physical vs human
capital
Understand role of innovation and
institutions
Connect growth theory to
business strategy
Growth Accounting Framework
Production Function Lens
Y=A f(K,H,L)
where:
K = Physical capital
H = Human capital
L = Labour
A = Technology (TFP)
Key Insight
Long-run growth mainly comes from A
(productivity)
Human Capital
Concept
Skills, Knowledg, health, managerial
ability.
Forms:
o Education
o Training
o Experience
o Health capital
Becker’s Human Capital Theory
Becker suggests that investments in education,
training, and health enhance an individual's
productivity and earnings potential.
Economic Implications
• It indicates that investing in human capital
can lead to increased economic growth
and productivity.
• It provides insight into the relationship
between education, economic growth,
and individual success.
Technology and Innovation
Technology ≠ Machines
Technology = knowledge + processes +
organization
Examples: Algorithms; Supply chain
optimization; AI models; Management
practices
Sources of Technological Progress
R&D investment
Learning by doing
Knowledge spillovers
Entrepreneurship
Growth Insight
Ideas are:
Non-rival
Scalable
Increasing returns
Business Application
Why tech firms scale faster than
manufacturing?
Because marginal cost ≈ zero after
innovation.
Examples:
o Software platforms
o Digital payments
o Streaming services
Institutions
Definition
Rules governing economic
interaction.
Include:
o Property rights
o Contract enforcement
o Political stability
o Regulatory mechanism
11
Institutions
Institutions reduce:
• Uncertainty
• Transaction costs
Strong Institutions Weak Institutions
Investment ↑ Capital flight
Innovation ↑ Informal economy
Long-term planning Short-term survival
12
Interaction: The Growth Triangle
Key insight:
None works alone.
Which should governments prioritize?
• Education?
• Innovation subsidies?
• Institutional reforms?
Business Implications
Managers must track:
o Talent quality
o Innovation ecosystem
o Institutional risk
Impacts on:
Location decisions
Wage structures
Investment horizons
Warm-Up
“Why doesn’t every
country become rich by
importing machines?
Is education
consumption or investment?
Conceptual Probes
Can a country grow
without improving
institutions?
Why do skilled workers
migrate internationally?
Does technology reduce
or increase inequality?
Business Lens
Why do multinational firms
prefer some countries
despite higher wages?
Why do startups tend to
cluster geographically?
Thinking Critically
If India doubles engineering
graduates, will growth
double?
Which matters more:
innovation or governance?