Human Capital and New Growth Theory: Some Insight from a Cross-Country Study
While it is generally accepted that human capital is an important factor of production, no consensus has yet been reached on how to conceptualize and measure this input factor. This can be clearly seen from the recent empirical cross-country studies of the ‘new growth’ literature: Firstly, the apparent lack of theoretical knowledge leads to specification problems; secondly, there are well-known data problems.
Panel data analysis using fixed effects-models allows to consider explicitely that a model may be mis-specified because of omitted variables. Applying this method to the estimation of aggregate Cobb Douglas production-functions drawing on a pooled data set of 75 countries and various years, it is shown that production functions with constant returns to scale to ‘raw’ labour, physical capital and human capital fit the data best Of several human capital variables tried out, ‘educational attainment of the labour force’ seems to be the most adequate indicator for human capital as a factor of production. Moreover, no support is found in favour of the increasing returns to scale-hypothesis, frequently advanced in the ‘new growth’ literature.
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