Human Capital, Ideas and Economic Growth

This chapter develops and analyses empirically a simple model of human capital, ideas and economic growth that integrates contributions from several different strands of the growth literature. These strands, and a discussion of what I try to emphasize in the paper, are outlined below: Romer (1990) and the research-based new growth theory. Recent advances in new growth theory emphasize the importance of ideas, non-rivalry and imperfect competition for understanding the engine of economic growth. Romer (1993) argues that these issues may also be important for understanding economic development. Nelson and Phelps (1966) provide a way of thinking about technology transfer that incorporates both human capital and advantages to ‘backwardness’. Mankiw et al. (1992) (MRW). MRW show that a simple neoclassical model can explain up to 80 per cent of the cross-country variation in the log of per capita GDP, especially if it incorporates differences in human capital investment across countries. Barro and Lee (1993) and Bits and Klenow (1996). Barro and Lee provide an extensive panel data set on educational attainment for a large number of countries. Bils and Klenow argue for including educational attainment in a model in a way that is consistent with Mincerian wage regressions. Benhabib and Spiegel (1994), Islam (1995), Pritchett (1996), and Judson (1996). These papers document in various ways a puzzle involving the relationship between human capital and economic growth. The puzzle appears when one looks at a growth-accounting approach that involves variables, such as the Barro and Lee (1993) human capital stocks. In either simple or multivariate regressions of the growth rate output on the growth rate of the human capital stock, the human capital stock appears with a negative coefficient.