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Explaining the Negative Coefficient Associated with Human Capital in Augmented Solow Growth Regressions

Author

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  • Arcand Jean-Louis

    (CERDI-CNRS, University of Auvergne & European Development Network)

  • Béatrice d'Hombres

    (CERDI-CNRS, University of Auvergne & University of Padua)

Abstract

In this paper we consider different explanations for why the coefficient associated with human capital is often negative in growth regressions once country-specific effects are controlled for, whereas the coefficient in question is strongly positive in cross-sectional or panel results based on the pooling estimator. In turn, we explore: (i) additional sources of unobserved heterogeneity stemming from country- specific rates of labor-augmenting technological change, (ii) measurement error in the human capital series being used, and (iii) the lack of variability in the human capital series once the usual covariance transformations are implemented. Remaining unobserved country-specific heterogeneity and measurement error alone are shown to be inadequate explanations. The lack of variability in the human capital series is tackled using a modified version of the Hausman-Taylor (1981) approach whose identifying assumptions are found to be reasonable in the context of the Solow model.

Suggested Citation

  • Arcand Jean-Louis & Béatrice d'Hombres, 2005. "Explaining the Negative Coefficient Associated with Human Capital in Augmented Solow Growth Regressions," Macroeconomics 0510010, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpma:0510010
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    More about this item

    Keywords

    Economic growth; human capital; measurement error; panel estimation;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical

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