The Human Capital Engine: How Health and Education Drive Global Economic Progress (OWID Data Insights)

The Human Capital Engine: How Health and Education Drive Global Economic Progress (OWID Data Insights

Investments in the health and education of a population are arguably the most crucial determinants of a nation’s long-term economic prosperity. Analysis from the Our World In Data group demonstrates that improvements in these areas are not simply beneficial social outcomes; they are fundamental inputs that boost productivity, reduce systemic vulnerabilities, and trigger the deep societal transformations necessary for sustained economic growth.

Historically, economic progress, defined as an increase in the quantity and quality of goods and services a society produces, was seen as necessary to fund basic welfare. However, the data reveals a powerful, reinforcing cycle where investments in human well-being actively spur greater productivity and allow entire societies to leave the extreme poverty of the past behind.

The Economic Returns of Health Investment

One of the most striking long-term trends documented by Our World In Data is the enormous progress made in global health. This progress translates directly into economic strength and resilience.

Key Developments in Longevity

Global life expectancy has more than doubled over the last two centuries. Demographic research shows that at the beginning of the 19th century, no country had a life expectancy exceeding 40 years, and the global average was less than 30 years. Today, the global average life expectancy is over 72 years. This achievement is particularly interesting because it is often argued that the gains are only due to a reduction in child mortality, but the data clearly shows life expectancy has increased across all age groups. For example, in 1841, a five-year-old in England and Wales could expect to live 55 years; today, a five-year-old can expect to live 82 years, a gain of 27 years.

Improvements in health are the result of better sanitation, nutrition, housing, access to vaccines, and healthcare.

High Gains at Low Investment Levels

A significant key development highlighted by researchers analyzing healthcare financing is the diminishing returns pattern observed between health expenditure and life expectancy. This means that the proportional highest gains in life expectancy are achieved in countries with low baseline levels of spending.

This correlation is robust: countries that spend more money on health see an increase in the life expectancy of their population. In fact, national income is the strongest cross-country predictor of healthcare spending, and sophisticated models confirm that higher per capita GDP has a clearly positive and significant effect on expenditure.

Building Economic Resilience

Investments in health and sanitation help societies manage risks that historically devastated economies. For instance, the drastic decline in mass famines is attributed in part to technological progress, economic development, and improvements in health. Two centuries ago, deep poverty was the condition for the majority of humanity, where hunger was widespread and high mortality was the norm. By improving access to basic goods and services like clean water, healthy food, and public infrastructure, sustained economic growth becomes possible, allowing nations to move beyond the zero-sum economies of the past. Even basic inputs like access to clean and safe water are essential for good health, yet one in four people globally still lacks access to safe drinking water, contributing to over a million deaths annually, mostly among the poorest people.

Education as the Engine of Productivity

Alongside health, education builds the necessary “human capital” required for technological innovation and sustained economic expansion.

Literacy and the Industrial Leap

The history of literacy underscores its fundamental role in development. Widespread literacy is a recent achievement, which followed centuries of restricted access to knowledge.

The most interesting datapoint on this trend is the dramatic global shift in literacy rates: In 1820, only about one in ten people in the world could read and write. Today, this ratio has fundamentally reversed, with only one in ten people remaining illiterate. The expansion of education systems globally, particularly after the mid-20th century, has led to a historical reduction in education inequality.

Widespread education, and particularly literacy, foreshadowed the emergence of modern societies and underpinned the Industrial Revolution. This expansion of knowledge is critical because economic growth relies on the development of technology to increase productivity.

Optimizing Educational Investment

Education generates both private returns (such as higher wages and better employment) and social returns (including interpersonal trust and political participation). While simply spending more resources on education does correlate with better outcomes like higher mean years of schooling and PISA test scores, optimization is key.

A key development for maximizing investment returns involves focusing on the quality of inputs:

1. Teacher Quality vs. Class Size: Empirical evidence suggests that directing resources toward improving teacher quality (experience and education) tends to be more effective for boosting learning outcomes than merely reducing class sizes.
2. Cost-Effective Interventions: Certain health interventions focused on students can be exceptionally cost-effective at improving educational metrics. For example, deworming primary school children in Kenya resulted in 14 additional school years achieved per hundred dollars spent, making it a highly impactful demand-side investment.

Education and Health: Driving Demographic Change

Investments in human capital influence national economic progress by fundamentally changing population dynamics, specifically by enabling the demographic transition—the shift from high mortality and high birth rates to low rates of both.

The Role of Women’s Education

The level of women’s education is one of the most important predictors for a family’s decision on the number of children they have. Education reduces fertility because it raises the opportunity costs for women having children and fosters changes in social norms.

One compelling datapoint illustrates this link: In Iran in 1950, women had an average of only a third of a year of schooling, and the fertility rate was around seven children per woman. By 2020, Iranian women had an average of nine years of schooling, and the fertility rate had fallen to below two. Studies confirm that rising education among women leads directly to a decrease in the fertility rate.

This educational empowerment, combined with women’s increased participation in the labor market, leads to a reinforcing cycle that contributes to long-term economic empowerment and narrows the historical gender pay gap.

Mortality Decline and the Quantity-Quality Trade-Off

Lower child mortality rates are directly linked to lower fertility rates. Historically, high mortality encouraged parents to have more children to ensure a desired number survived. As health improves and mortality declines, parents adapt to the healthier environment and choose to invest more in the education and well-being (“quality”) of fewer children, rather than focusing on the number (“quantity”).

This shift toward investing in higher-quality human capital through education is crucial for supporting a modern, technologically advanced economy.

The Scale of Remaining Challenges

Despite two centuries of incredible progress—where economic growth allowed billions to escape extreme poverty—Our World In Data emphasizes that the history of global poverty reduction has only just begun.

While the share of the world living in extreme poverty (less than $2.15 per day) has declined dramatically, using higher poverty lines reveals the immense challenge ahead. If the poverty line is set at $30 per day (typical of high-income countries), approximately 84% of the world still lives below it. This complexity highlights that investments in health and education must be continuous and widely distributed if the world is to achieve truly high standards of well-being and universal prosperity.