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On the inconclusive effect of human capital on growth: A new look at extended specifications

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  • Eftimoski, Dimitar

Abstract

One of the reasons for the weak and inconclusive effect of human capital on growth in existing cross-country studies may be the use of inappropriate specifications that do not account for different channels through which human capital affects economic growth. It has been suggested that both the initial stocks and changes in the human capital stocks have positive growth effects when considered together, while each channel often appears insignificant in isolation. This implies that the effect of human capital is likely to be underestimated in restricted (single-channel) specifications. However, this paper shows that extended (two-channel) specifications might also fail to provide a reasonable explanation for the inconsistent human capital effects in existing growth literature. It seems that the omitted variable bias problem resulting from the ‘incomplete’ specification of human capital in growth regression may not be as pronounced as expected. In addition, we consider some aspects of measurement error and low signal in the changes in human capital.

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  • Eftimoski, Dimitar, 2022. "On the inconclusive effect of human capital on growth: A new look at extended specifications," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 708-727.
    • Handle: RePEc:eee:ecanpo:v:76:y:2022:i:c:p:708-727
    DOI: 10.1016/j.eap.2022.09.012
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    More about this item

    Keywords

    Human capital; Economic growth; Omitted variable bias;
    All these keywords.

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development

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