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Explaining the Negative Coefficient Associated with Human Capital in Augmented Solow Growth Regressions

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Author Info
Arcand Jean-Louis (CERDI-CNRS, University of Auvergne & European Development Network)
Béatrice d'Hombres (CERDI-CNRS, University of Auvergne & University of Padua)

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Abstract

In this paper we consider different explanations for why the coefficient associated with human capital is often negative in growth regressions once country-specific effects are controlled for, whereas the coefficient in question is strongly positive in cross-sectional or panel results based on the pooling estimator. In turn, we explore: (i) additional sources of unobserved heterogeneity stemming from country- specific rates of labor-augmenting technological change, (ii) measurement error in the human capital series being used, and (iii) the lack of variability in the human capital series once the usual covariance transformations are implemented. Remaining unobserved country-specific heterogeneity and measurement error alone are shown to be inadequate explanations. The lack of variability in the human capital series is tackled using a modified version of the Hausman-Taylor (1981) approach whose identifying assumptions are found to be reasonable in the context of the Solow model.

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Paper provided by EconWPA in its series Macroeconomics with number 0510010.

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Length: 32 pages
Date of creation: 11 Oct 2005
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Handle: RePEc:wpa:wuwpma:0510010

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Keywords: Economic growth human capital measurement error panel estimation

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E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical

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  1. Konseiga, Adama, 2005. "Regionalism in West Africa: Do Polar Countries Reap the Benefits? A Role for Migration," IZA Discussion Papers 1516, Institute for the Study of Labor (IZA). [Downloadable!]
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