While human capital and human development sound similar, there is a clear distinction between the two concepts based on how they view the role of education and health.

Human capital considers education and health as a means to increase labour productivity. It essentially treats human beings as a means to an end, where the end is the increase in productivity. From this perspective, any investment in education and health is considered unproductive if it does not enhance the output of goods and services.

On the other hand, human development is based on the idea that education and health are integral to human well-being. It emphasizes that only when people have the ability to read and write and lead a long and healthy life, will they be able to make other choices which they value.

In the human development perspective, human beings are ends in themselves. Therefore, human welfare should be increased through investments in education and health even if such investments do not result in higher labour productivity. This is the fundamental difference between the two approaches.