Unlocking household prosperity: The hidden power of human capital in Africa

A new study has found that human capital development significantly drives household income growth in Burkina Faso. The research, titled “Effect of Human Capital Development on Household Income Growth in Burkina Faso: An Analysis Through a Decomposition Method,” and published in Economies, uses decomposition techniques and regression models to quantify how education, health, dietary diversity, and underemployment impact income trends over time.

The findings present crucial implications for economic policymakers not only in Burkina Faso but also in other Sub-Saharan nations grappling with persistent poverty and inequality. By clearly delineating the income effects of human capital endowment and the return on these endowments, the study breaks new ground in the empirical understanding of inclusive growth strategies in low-income economies.

How does human capital drive income growth?

Household income growth in Burkina Faso between 2009 and 2018 was driven largely by improvements in human capital. This encompasses higher levels of education, better health conditions, reduced underemployment, and diversified diets. The authors deployed multiple linear regression models in conjunction with Oaxaca-Blinder decomposition to isolate and evaluate the dual effects of endowment and return.

Endowment effects refer to the increase in household income due to greater access to human capital factors, such as higher educational attainment or improved nutrition. Return effects capture the degree to which these factors translate into income gains. The findings showed that both components had a statistically significant and positive impact on household earnings. However, the return effect was particularly important in determining the magnitude of income growth, suggesting that merely increasing education levels or health access is not sufficient, these improvements must also be economically valued in the labor market.

Importantly, the study underscores that income growth was more robust in households that achieved gains in both endowment and return, emphasizing the need for a dual-focus development strategy.

Which components of human capital are most influential?

Breaking down the different elements of human capital, the study identifies education as the most dominant driver of income growth, followed closely by health status and dietary diversity. Underemployment, while negatively correlated with income growth, still featured as an important component in explaining income disparities between households.

Education delivered the highest contribution to income variance, indicating its strong return in Burkina Faso’s evolving labor market. Better health outcomes and diversified diets were also positively linked to productivity and earnings, echoing global findings on the role of nutrition and physical well-being in economic performance. The research goes further by quantifying each of these variables’ contributions using decomposition metrics, offering policymakers a toolkit for evidence-based planning.

The findings suggest that investment in education must be accompanied by labor market reforms that enhance the utility of educational achievements. Similarly, nutrition and healthcare programs should be aligned with employment policies that capitalize on healthier, more capable individuals.

What are the policy implications for developing economies?

The policy roadmap offered by the study hinges on two strategic levers: increasing access to human capital inputs and ensuring favorable market conditions that reward such investments. For Burkina Faso and comparable economies, this means investing in universal education, vocational training, public health systems, and social safety nets that reduce underemployment. It also demands creating economic environments, through job creation, wage improvements, and employer incentives, that make such human capital investments worthwhile.

Additionally, the use of Oaxaca-Blinder decomposition introduces a methodological advancement in how income growth is analyzed. This approach can be adapted across different contexts and regions to assess which factors most influence income disparities and by what degree.