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The Efficiency of Human Capital Allocations in Developing Countries

  • Dietrich Vollrath

    ()

    (University of Houston)

For a set of 14 developing countries I evaluate whether differences in the marginal product of human capital between sectors - estimated from individual-level wage data - have meaningful effects on aggregate productivity. Under the most generous assumptions regarding the homogeneity of human capital, my analysis shows that equalizing the marginal product of human capital between sectors leads to gains in output of less than 5% for most countries. These estimated gains of reallocation represent an upper bound as some of the observed differences in marginal products between sectors are due to unmeasured human capital. Under reasonable assumptions on the amount of unmeasured human capital the gains from reallocation fall well below 3%. Compared to similar estimates made using data from the U.S., developing countries would gain more from a reallocation of human capital, but the differences are too small to account for a meaningful portion of the gap in income per capita with the United States.

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File URL: http://www.uh.edu/econpapers/RePEc/hou/wpaper/201307956.pdf
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Paper provided by Department of Economics, University of Houston in its series Working Papers with number 201307956.

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Date of creation: 15 Mar 2013
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Handle: RePEc:hou:wpaper:201307956
Contact details of provider: Postal: Houston TX 77023
Web page: http://www.uh.edu/class/economics/

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