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The Efficiency of Human Capital Allocations in Developing Countries

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  • Dietrich Vollrath

    () (University of Houston)

Abstract

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.

Suggested Citation

  • Dietrich Vollrath, 2013. "The Efficiency of Human Capital Allocations in Developing Countries," Working Papers 201307956, Department of Economics, University of Houston.
  • Handle: RePEc:hou:wpaper:201307956
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    References listed on IDEAS

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    1. Misallocation of human capital in developing countries
      by Economic Logician in Economic Logic on 2013-04-18 19:13:00

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    Cited by:

    1. Cai, Wenbiao, 2015. "Structural change accounting with labor market distortions," Journal of Economic Dynamics and Control, Elsevier, vol. 57(C), pages 54-64.
    2. McCullough, Ellen B., 2017. "Labor productivity and employment gaps in Sub-Saharan Africa," Food Policy, Elsevier, vol. 67(C), pages 133-152.

    More about this item

    Keywords

    Misallocation; human capital; aggregate productivity; structural transformation; wage differentials;

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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