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The use of the term education is explained and justified by the unique characteristics of knowledge. Unlike physical labor (and the other factors of production), knowledge is:

Expandable and self generating with use: as doctors get more experience, their knowledge base will increase, as will their endowment of human capital. The economics of scarcity is replaced by the economics of self-generation.

Transportable and shareable: knowledge can be moved and shared. This transfer does not prevent its use by the original holder. However, the transfer of knowledge may reduce its scarcity-value to its original possessor.

Expenditure on education and training is called human capital formation. In other words to increase the productive qualities of the labour force expenditure can be increased by providing more education and skill.

In the less developed countries the productive capacity of the labour is very low. To increase this capacity there is a need of human capital formation. In the developing countries capital formation is needed to expand the government services to introduce new methods of production and to build the educational system. Human capital formation is also needed for the developing country to make the best use of imported machinery. Whenever the new plan or machinery is imported our engineers go abroad for training. Without training, we can not use this machinery.

Human capital formation is also very essential for increasing the efficiency of the labour and creating specialization ability.

Human capital formation increases the income and standard of living of the people. Education and skilled labour force can make the best use of country's resources.