Human capital homogeneity and economic growth
We study the effects of human capital homogeneity on economic growth with a two-sector model. We model the difference in human capital via a varying efficiency of individual agents in human capital production, alternatively education. Even though mean value of the education efficiency is the same between any two countries, the variance of the education efficiency may be quite different between the two countries. I.e., country i's efficiency in human capital production may be more evenly distributed among its agents compared to country j. We want to show this difference in educational efficiency, possibly due to difference in individual ability, has a critical effect on the economic performance of each country. We get a better outcome for the more homogeneous country than a less one indeed in the sense that gross average product of physical capital and aggregate consumption per aggregate physical capital are higher for the more homogeneous country. This may be compared to the role of variance of returns in financial economics. I.e., variance in human capital production efficiency is best avoided given its average efficiency level just like the variance of return is minimized for given level of return for risk averse agents in financial asset prici
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|Date of creation:||11 Aug 2004|
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