Human capital development, poverty and income inequality in the Eastern Cape province

ABSTRACT Despite the successful transition into democracy in South Africa, poverty and inequality levels remain consistently high for an upper-middle-income country. The pace of human capital development continues to be inadequate to solve the socio-economic challenges. The objective of the study is to examine the effect of human capital formation represented by education attainment, on poverty and inequality in the Eastern Cape province. Using the Pooled Mean Group (PMG) estimator, the study investigates the long-run relationship between the variables. The study found that an increase in human capital leads to a decline in poverty levels. However, human capital is positively related to income inequality which is an indication of unequal economic opportunities and inequality in the education system. The study recommends that policies be introduced to reduce inequality in schools. Community involvement in improving the quality of schools is of utmost importance. Education policies such as school choice may have contributed to education inequality.