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Human capital and structural change: how do they interact with each other in growth?

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  • Dalila NICET – CHENAF
  • Eric ROUGIER

Abstract

Human capital measures (schooling) are poorly significant in explaining growth for developing countries. An explanation is that increases in human capital have no significant effect on growth if this human capital is misallocated and underemployed. In a simple two-sector model of a small open economy, we show that the effect of education on growth is more significant if the country has entered into the structural change that raises the demand for skilled labour. Moreover, we give a special attention to the role of entrepreneurs in the increase in the demand for skills in the modern sector and propose to measure it through the diversification of exports. We then derive an econometric specification from a simple two-sector model of growth with structural change and different levels of skills. From a sample of emerging economies, we provide econometric evidence that the reduction in the traditional share of GDP and a higher diversification of export both have a positive influence on growth rates. We also show that if the drop in traditional activities is to matter for growth, it is not through the skill reallocation from traditional to modern activities whereas export diversification is a factor of higher growth, directly but also through the enhancement of the effect of human capital on the increase of GDP. Then, the point could be that if reallocation of skills is to matter, it is more probably through shifts among the industrial sector, from the older to the newer activities than across sectors, from the traditional to the modern.

Suggested Citation

  • Dalila NICET – CHENAF & Eric ROUGIER, 2009. "Human capital and structural change: how do they interact with each other in growth?," Cahiers du GREThA (2007-2019) 2009-14, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).
  • Handle: RePEc:grt:wpegrt:2009-14
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    More about this item

    Keywords

    Human capital; growth; structural change;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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