Human capital at the core of Armenia's economic development: Findings from new study

Members of the research team implementing the "Key Challenges and Solutions for Human Capital Management in the Republic of Armenia" project, carried out within the framework of the RA MoESCS Higher Education and Science Committee's "Establishment of Remote Laboratories 2024" competition, have authored the article "Sustainable Development of Human Capital and Digital Technologies in Armenia as a Driver of Socio-Economic Consolidation". The article was published in the Scopus-indexed Q2 International Journal of Technology.    

"We developed the Human Capital Sustainability Index, which incorporates indicators of education, healthcare, innovation, digitalization, demographics, the labor market and economic development. This allowed us not only to assess long-term trends in Armenia's human capital development from 2000 to 2024, but also to identify which factors contribute most to economic growth and which continue to constrain development potential," says article co-author Karlen Khachatryan, Dean of the YSU Faculty of Economics and Management.

– Mr. Khachatryan, the article presents the Human Capital Sustainability Index (HCSI). Could you explain what it is?

– The Human Capital Sustainability Index is a comprehensive assessment tool we developed that enables us to evaluate the level of human capital development and its sustainability over time within a single integrated framework.

The index was developed based on six main components: education, healthcare, innovation, digitalization, demographics, labor market, and economic development. Overall, 20 indicators were included, reflecting different aspects of the formation, preservation and effective use of human capital in the economy.   

– Which of the study's main findings would you highlight as the most important for Armenia? 

– Several findings are particularly important from the perspective of Armenia's development. We identified a strong link between human capital and economic development. The study shows that improvements in human capital directly contribute to growth in GDP per capita, with this effect typically becoming evident within about two years. This means that investments in education, healthcare and skills development generate not only social benefits but also significant economic returns. 

Another important finding concerns digitalization's role. The results show that digital technologies have become the main bridge through which human capital is transformed into productivity and economic growth. In recent years, increased internet access, growth in ICT service exports and the development of digital infrastructure have contributed significantly to Armenia's economic progress.

– The article states that digitalization is one of the main mechanisms through which the impact of human capital is translated into economic outcomes. What does this mean?

– When we emphasize that digitalization is one of the main mechanisms through which the impact of human capital is translated into economic outcomes, we mean that digital technologies enable people to convert their knowledge and skills into productivity, innovation and economic growth. In other words, education and professional capabilities alone are not sufficient; an environment in which they can be applied effectively is also necessary. Digitalization is a key factor in creating such an environment.

For example, a highly qualified specialist can work with international companies, create digital services and work remotely only when the necessary digital infrastructure and technological capabilities are available. The same applies to businesses, which can use digital solutions to increase productivity, expand markets, and make more effective use of their workforce's potential.

– In your assessment, what are the main challenges Armenia currently faces in developing human capital? 

– Our research shows that a number of systemic challenges in human capital development persist in Armenia. According to the study, the main challenges in Armenia are demographic issues and the outflow of highly qualified specialists, the relatively weak development of science and innovation, and the mismatch between education and labor market needs. Uneven digital development, particularly between Yerevan and the provinces, is also a significant challenge.

– What role can universities, and research centers in particular, play in developing human capital and the digital economy?

– In modern economies, the role of universities is not limited to providing education. Universities and research centers are key actors in developing human capital, generating innovation and advancing the digital economy.

In the digital economy, this role becomes even more significant. Artificial intelligence, data science, cybersecurity, digital governance and other emerging fields require new skills and continuously updated knowledge. In this process, universities and research centers should become platforms that bring together education, science and business. Such cooperation helps transform human capital into innovation, higher productivity and economic growth.

– How useful can the article's findings be for policymakers?

– Our research findings can be useful for policymakers because they make it possible not only to assess the current state of human capital but also to understand the main obstacles and opportunities for its development. The Human Capital Sustainability Index we developed can be used as a tool for monitoring and evaluating the effectiveness of state programs.

The study shows that progress in education, digital skills and technological infrastructure could yield significant economic benefits. At the same time, targeted policies are needed to address demographic challenges, youth unemployment, the mismatch between professional skills and labor market needs, along with the development of science and innovation. 

It is also important to remember that the economic impact of investment in human capital does not become apparent immediately. According to the study, its effects become noticeable after approximately two years. Therefore, investment in education, science and healthcare should be viewed not as a current expenditure but as a strategic investment in the country's long-term competitiveness and economic growth. 

– Mr. Khachatryan, what practical recommendations have you presented to decision-makers based on the study's findings?

– Based on the research findings, we have presented a number of practical recommendations aimed at developing Armenia's human capital and strengthening its economic impact.

The first recommendation concerns further developing digital skills and digital infrastructure. Investment should continue to expand digital access in the provinces, as well as develop digital literacy and professional digital skills among the population.  

The second is promoting science and innovation. We recommend expanding funding for applied research, promoting university-business cooperation, developing joint research programs and introducing outcome-based financing mechanisms. 

The third recommendation concerns the strengthening of the link between education and the labor market. Educational programs need to respond more quickly to the evolving demands of the economy, while cooperative education programs with employers, internships and dual education systems should be further developed. This will help increase youth employment and enable more effective use of professional skills.

We have also placed considerable emphasis on demographic and migration challenges. We have proposed policies to support employment among young professionals, create opportunities for career advancement and reduce the outflow of highly qualified specialists.

– If you were to summarize the main message of this study in one sentence, what would you say about Armenia's future?

– The most important resource for Armenia's economic future is people's knowledge, skills and creative potential, while the key to fully realizing that potential lies in the combined development of education, innovation and digital technologies.