This research encompasses 177 countries around the world with the data on human resource variables for the year 2005. The countries have been put into four groups: gravely underdeveloped, developing, developed, and highly developed. The research has looked into the variables Human Development Index, population, population over 65 years of age, primary education enrolment, investment into secondary education, investment into tertiary education, investment into research and development, Gender–Related Development Index and productivity increase, and analyzed how they influence the economic growth rate. This means that the impact of changes in the observed variables is analyzed, i.e. how they influence the standard of living and level of development in countries of the world. The main hypothesis is that investing in people, i.e. in primary, secondary and tertiary education will bring long-term positive effects on social growth and development, thus contributing to the level of development and overall standard of living. Another hypothesis is that, depending on the development level, human capital and education will exert different influence on GDP per capita, which indicates that a number of economic variables play a major role on the effects of education.primary education, secondary education, tertiary education, human resource capital, economic development, development level

Boris Crnkovic

Zeljko Pozega

English

Research Papers in Economics

Interdisciplinary Management Research V 
IMPACT ANALYSIS OF CHANGES IN HUMAN RESOURCE 
CAPITAL ON ECONOMIC DEVELOPMENT – FROM GRAVELY 
UNDERDEVELOPED TO HIGHLY DEVELOPED SOCIETIES 
Željko Požega
1, Boris Crnković
2
1Faculty of Economics in Osijek, Croatia, bcrnko@efos.hr 
2Faculty of Economics in Osijek, Croatia, zpozega@efos.hr 
________________________________________________________________
Abstract
This research encompasses 177 countries around the world with the data on human resource 
variables  for  the  year  2005.  The  countries  have  been  put  into  four  groups:  gravely 
underdeveloped, developing, developed, and highly developed. The research has looked into the 
variables Human Development Index, population, population over 65 years of age, primary 
education enrolment, investment into secondary education, investment into tertiary education, 
investment  into  research  and  development,  Gender–Related  Development  Index  and 
productivity increase, and analyzed how they influence the economic growth rate. This means 
that the impact of changes in the observed variables is analyzed, i.e. how they influence the 
standard of living and level of development in countries of the world. The main hypothesis is 
that investing in people, i.e. in primary, secondary and tertiary education will bring long-term 
positive  effects  on  social  growth  and  development,  thus  contributing  to  the  level  of 
development  and  overall  standard  of  living.  Another  hypothesis  is  that,  depending  on  the 
development  level,  human  capital  and  education  will  exert  different  influence  on  GDP  per 
capita, which indicates that a number of economic variables play a major role on the effects of 
education.
JEL classification: E24, O15 
Keywords: primary education, secondary education, tertiary education, human resource capital, 
economic development, development level 
________________________________________________________________
1. Introductory considerations 
Research of impact analysis of changes in human resource capital on economic 
development – from gravely underdeveloped to highly developed societies – 
has  been  divided  in  three  parts.  The  first  part  provides  a  brief  theoretical 
overview of literature on impact of education on human capital development 
published  in  the  country  and  abroad.  The  second  part  covers  the  research 
methodology  and  explains  data  used  in  research  and  analysis  by  countries 
207Interdisciplinary Management Research V 
around the world. The third part provides analysis and interpretation of results 
of conducted research, showing impact changes of human capital development 
on economic development and gross domestic product (GDP) per capita of the 
observed  countries  of  the  world.  The  aim  of  this  research  is  to  test  the 
hypothesis that investing in people, i.e. investing in primary, secondary and 
tertiary education will bring long-term positive and significant effects on social 
growth and development, thus contributing to the level of development and 
overall  standard  of  living.  Another  hypothesis  is  that,  depending  on  the 
development level, human capital and education will exert different influence 
on GDP per capita, which indicates that a number of economic variables play a 
major role on the effects of education. 
2. Theoretical overview of education impact on human capital development 
Many scientists think that successful companies and societies in the 21
st century 
will be those that will be the most successful in revealing, storing and applying 
what their people know. In order to be successful in knowledge management 
and creation of added value, it is necessary to create suitable conditions in an 
organization,  i.e.  society  itself.  In  other  words,  this  means  that  knowledge 
intensive organizations or self-learning organizations, i.e. self-learning society 
have to be developed.
Learning  Organization  or  Knowledge  Organization  or  Knowledge  Society 
(Armstrong;2001,89)  is  an  organization  or  a  society  in  which  people  at  all 
levels, individually or collectively, continuously increase their knowledge in 
order  to  achieve  results  they  desire.  Emphasis  is,  of  course,  on  people  and 
development  of  their  capacities  to  overcome  changes  by  changing  their 
knowledge, skills, attitudes, habits, values, etc., that is, on their ability to learn. 
The future of learning societies will depend only on the ability of individuals 
and teams to learn and to increase their creativity, innovation and knowledge all 
the time.
Dynamic development of organization learning theory results in appearance of 
different  learning  schools:  systematic  (authors  were,  among  others,  Beer, 
Senge, Sterman, Sutton), organizational (author Argyris) and strategic (authors 
Burgelman  and  Sayles).  Also,  according  to  Huczynski  and  Buchanan 
(Senge;2000,218),  in  the  concept  of  organizational  learning  it  is  possible  to 
recognize  two  different  learning  models:  the  one  based  on  behaviourism, 
referring to creation of procedural knowledge (the ability to practice a certain 
skill without understanding the complex cause-and-effect relationship), and the 
cognitive  one,  which  is  closer  to  creation  of  declarative  knowledge 
(understanding  the  concept  which  does  not  necessarily  have  the  practical 
application).On  the  other  hand,  according  to  the  psychologist  Kingsland 
(Senge;2000,237),  learning  is  a  combination  of  cognitive,  affective  and 
208Interdisciplinary Management Research V 
behavioural activities through which a learning person at the same time thinks, 
feels and acts. 
Organizations,  like  individuals,  can  use  different  levels  of  learning:  from 
accidental  (reflex,  spontaneous,  unconscious,  incidental)  to  educated 
(conscious, inductive, calibrating, integral). Although certain forms of leaning 
may  appear  spontaneously  (for  example,  reflexes),  the  practice  of  the  most 
successful organizations and societies of today indicates the importance of the 
planned  and  conscious  attitude  toward  the  learning  process.  According  to 
Pedlar and associates (Aronson et al.;2005,118), the key characteristics of a 
learning  society  are:  learning  and  participatory  approach  to  formulation  of 
strategies,  which  includes  regular  planning,  application  and  monitoring, 
reporting  on  the  achieved,  organizational  structure  facilitating  changes  and 
development, openness to environment that ensures utilization of opportunities, 
and  inter-organizational  learning  and  internal  climate  which  emphasizes 
learning and development.
Peter Senge (Senge;2000,268) lists the five main disciplines in building of a 
learning organization or society: personal mastery, recognizing mental models, 
building shared vision, team learning and systems thinking. Personal mastery is 
the discipline of continually clarifying and deepening our personal vision, of 
focusing our energies, of developing patience, and of seeing reality objectively. 
Simply put, organization or a society cannot learn until all their members start 
to  learn  and  apply  the  concept  of  life-long  or  generative  learning.  Further, 
mental  models  are  deeply  ingrained  assumptions,  generalizations,  or  even 
pictures and/or images that influence how we understand the world and how we 
take action, and these are wrong with the most of the people. According to 
Argyris  (Davey;2003,19),  with  mental  models  most  of  the  people  practice 
defence behaviour due to fear, which is actually a barrier to individual and 
organizational learning. Argyris thinks that human behaviour emerges from “a 
scale  of  conclusions”  which  consists  of  human  observations,  theories  and 
assumptions created by individuals, beliefs they acquire and actions they take, 
and since human mental models have mistakes, individuals very often behave 
inappropriately. As a methodology for elimination of mistakes in human mental 
models, Argyris suggests harmonization of what is thought with what is said 
(“left – hand column and right – hand column” techniques). Building a shared 
vision refers to the capacity to hold a shared picture of the future we seek to 
create. The shared vision of a society can and must be built only of individual 
visions  of  its  members.  Team  learning  is  vital,  because  it’s  the  teams,  not 
individuals, who are the key learning units in a modern organization or society. 
When teams really learn, not only they achieve exceptional results, but also 
individual members develop faster than they would otherwise develop, while in 
situations when teams cannot learn, an organization or a society also cannot 
learn. Finally, systems thinking is a group of knowledge and methods which are 
209Interdisciplinary Management Research V 
developed  in  order  to  provide  an  insight  in  how  to  change  them.  Systems 
thinking is the fifth discipline, it integrates the other disciplines, and it is easier 
to develop it with people of younger age. 
An  important  feature  of  a  learning  organization  is  that  investing  in  new 
knowledge  becomes  a  way  of  behaving  in  which  everyone  is  a  knowledge 
worker and so everyone can compare their knowledge with the knowledge of 
their competitors and see whether it is shrinking or growing (Benchmarking). 
The  concept  of  a  learning  organization  is,  without  any  doubt,  becoming  a 
philosophy with growing presence in modern societies, from large multinational 
companies  to  the  smallest  organizations,  and  this  large  emphasis  on 
organization learning is caused by ever faster and more frequent changes in 
today’s economy. Of course, creating such a society is not easy at all; therefore 
Learning Labs are more often applied. Learning Labs provide accounts of real 
situations where teams learn how to learn together through simulation games, 
where they find mistakes from which they learn, in order not to make them in 
future.
It results from all of the above stated that the future of development of business 
organizations,  states  or  societies  will  depend  on  capacities  of  individuals, 
teams,  departments,  facilities  or  total  corporations  or  institutions  and  their 
desire  to  learn  and  to  increase  their  knowledge  throughout  their  life  and 
working life. Therefore states and societies have no choice but to finally start 
making  larger  investments  into  people,  creation  of  new  knowledge  and 
development of learning organizations and a learning society, which are the 
main  prerequisites  for  survival  and  success  under  ever  tougher  competitive 
conditions.  The  concept  of  developing  education,  an  education  system,  a 
learning organization and a learning society is becoming a new imperative for 
every business entity and every society in the period ahead of us, in which only 
those companies and societies that will have the necessary knowledge will have 
the crucial role on the market, i.e. faster and higher economic growth.
3. Data collection and methodology 
The  base  of  research  conducted  in  this  paper  comprises  data  collected  on 
statistical variables of Human Development Index, population, population over 
65  years  of  age,  primary  education  enrolment,  investment  into  secondary 
education,  investment  into  tertiary  education,  investment  into  research  and 
development, Gender–Related Development Index and productivity increase
19
for  177  countries  of  the  world  for  the  period  from  1975  to  2005,  with 
19  Calculation method for all of the stated statistical variables and the list of observed countries 
in the world are explained and stated in detail on http://unstats.un.org/unsd/
210Interdisciplinary Management Research V 
projections for the year 2015, where the year 2005 has been taken as the basic 
year for the needs of this research.
20
4. Research results analysis
The research presented in this paper is based on analysis of data obtained by 
calculating  linear  regression  equation,  linear  correlation  coefficients  and 
multiple  linear  correlations,  and  available  data  have  been  processed  and 
analyzed with application of SPSS statistical programme package.
Impact changes of human capital variables on GDP per capita in countries of 
the world have been observed on the grounds of different development levels of 
the countries of the world for the year 2005, and according to the previous 
arbitrary  division  by  the  authors  of  this  paper  into  gravely  underdeveloped 
countries, (GDP per capita under $1 000), underdeveloped countries (GDP per 
capita ranges from $1 000 to $5 000), developed countries (GDP per capita 
ranges from $5 000 to 20 000) and highly developed countries (GDP per capita 
exceeds $20 000). 
4.1. Impact analysis of human capital on economic development 
Variable  Gravely 
underdeveloped
countries
Underdeveloped
countries
Developed
countries
Highly
developed
countries
Human
Development
Index
0,71  0,77  0,85  0,82 
Population  - 0,61  - 0,66  - 0,69  - 0,72 
Population
over 65 years 
of age 
- 0,53  0,45  0,52  0,56 
Primary
education
enrolment
0,59 0,54 0,51 0,48
Investment
into
secondary
education
- 0,62  0,51 0,56 - 0,52 
Investment
into  tertiary 
education
0,51 0,73 0,91 0,85
20 Official statistical data of United Nations, cited according to http://hdr.undp.org/
211Interdisciplinary Management Research V 
Investment
into  research 
and
development
0,37  0,43  0,57  0,84 
Gender
Related
Development
Index
0,42  0,46  0,45  0,51 
Productivity
increase
0,49  0,54  0,71  0,86 
Table 1. Overview of linear correlation coefficients of the observed variables 
and  their  impact  on  GDP  per  capita  of  analyzed  countries  of  the  world 
according  to  the  division  from  gravely  underdeveloped  to  highly  developed 
countries of the world. 
Positive impact of the Human Development Index variable grows along with 
the growth of development level of a country, with a slightly decreased impact 
in highly developed countries, i.e. human capital has a slightly weaker impact 
on economic development after a country achieves a certain high development 
level.
Negative impact of the population variable grows as the development level of a 
certain  country  grows,  i.e.  higher  level  of  standard  of  living  -  the  lesser 
population a country has, easier and faster it achieves the higher level of GDP 
per capita. 
The population over 65 years of age variable has a negative impact in gravely 
underdeveloped countries, while its impact is positive and grows as the country 
achieves higher development level, which points to the growing contribution of 
retired people to economic development as the wealth of a country grows.
The enrolment into primary education variable has a positive trend with the 
falling tendency as the standard of living grows, which indicates a positive, but 
still decreasing impact of primary education as development level of a society 
grows.
The  investment  into  secondary  education  variable  has  a  negative  impact  in 
gravely  underdeveloped  and  highly  developed  countries,  while  its  positive 
impact in underdeveloped and developed countries reveals the inability of the 
poorest countries to ensure development and contribution of educated people 
with secondary education. Even in highly developed countries of the world it 
reveals insufficiencies of secondary education and the need for higher education 
needed for a more serious social and economic development. 
The investment into tertiary education variable has a trend of a positive impact, 
independently of a development level of a country, which clearly indicates the 
importance of university and life-long education for development of a society 
and economic progress. 
212Interdisciplinary Management Research V 
For the investment into research and development variable, a positive impact 
increases from gravely underdeveloped toward highly developed countries, so 
that the impact in highly developed countries would become incomparably and 
significantly larger than in countries with the lower standard of living, which 
shows that the impact of science and research as well as innovative and creative 
projects is becoming prominent. 
The  Gender  Related  Development  Index  variable  has  a  trend  of  a  positive 
impact, independently of the standard of living in the countries of the world, 
which indicates the importance of even development of both genders in every 
society.
The  productivity  increase  variable  shows  a  growing  positive  impact  as 
development  level  of  the  countries  increases,  which  indicates  that  the 
significance of a human factor in work and work processes grows along with 
economic development. 
5. Research results synthesis 
Research  results  indicate  a  presence  of  a  positive  pattern  of  human  capital 
development impact on economic development of the countries of the world, 
and  they  also  indicate  different  movement  tendencies  of  human  capital 
development  impact,  if  we  observe  countries  of  the  world  from  gravely 
underdeveloped  to  highly  developed,  i.e.  according  to  their  economic 
development.
The research has proved that the main research hypothesis is positive, i.e. that 
investing  in  people,  that  is,  investing  in  primary,  secondary  and  tertiary 
education will bring long-term positive and significant effects on social growth 
and development, thus contributing to the level of development of a certain 
country  and  overall  standard  of  living.  Another  hypothesis  has  also  been 
confirmed, stating that, depending on the development level, human capital and 
education will exert different influence on GDP per capita, which indicates that 
a number of economic variables play a major role on the effects of education. 
213Interdisciplinary Management Research V 
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Impact Analysis of Changes in Human Resource Capital on Economic Development - from Gravely Underdeveloped to Highly Developed Societies

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Impact Analysis of Changes in Human Resource Capital on Economic Development - from Gravely Underdeveloped to Highly Developed Societies

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