Human capital is believed to be positively related to economic growth though it is difficult to establish a relation of cause and effect from the growth of human capital to economic growth bill we can see that human capital formation is related to economic growth in the following manner:

1. Increase in Labour Productivity Investment in human capital through expenditure on education, health, etc enhances the productivity of labour as they become physically III and skilled in their jobs. It leads to efficient utilisation of the material Inputs and capital. With increase in productivity, output increases at an increasing rate and hence economic growth accelerates. The population can itself become an asset in accelerating economic growth if it is trained and educated on sound lines.
2. Innovations Research and development is necessary for innovations in an economy which lead to advancement in technology and creation of new products. Human capital formation helps in preparing learned scientists and researchers in various subjects who bring out innovative products, technologies and processes and thus add to the economic growth.
3. Absorptive Capacity Advanced technology can be adopted only if the skills and knowledge required for using that technology is present in the country. Investment in education and on-the-job training helps to create these skills and knowledge base and thus helps in absorption of new technologies which lead to higher production and thus economic growth.
4. Participation Rate Human capital formation makes a greater proportion of population capable of participating in the economic, social and political activities of a nation thus raising the participation of people in the process of economic growth.