This paper presents new data on annual average years of schooling at the state level of the United States from 1840 to 2000. It also presents state per capita incomes from 1840 to 2000. The data show that New England, Middle Atlantic, East North Central and West North Central regions have been educational leaders over the entire time period. In contrast the South Atlantic, East South Central and West South Central regions have been educational laggards over the entire period. The Mountain and Pacific regions behave differently than either of the aforementioned groups. Estimates of the return to schooling indicate that a year of schooling increased income by between 8 percent and 15 percent, with a point estimate close to 9 percent. These estimates are in line with the body of evidence from the labor literature.
For ninety-eight countries in the period 1960-85, the growth rate of real per capita GDP is positively related to initial human capital (proxied by 1960 school-enrollment rates) and negatively related to the initial (1960) level of real per capita GDP. Countries with higher human capital also have lower fertility rates and higher ratios of physical investment to GDP. Growth is inversely related to the share of government consumption in GDP, but insignificantly related to the share of public investment. Growth rates are positively related to measures of political stability and inversely related to a proxy for market distortions.
Empirical findings for a panel of around 100 countries from 1960 to 1990 strongly support the general notion of conditional convergence. For a given starting level of real per capita GDP, the growth rate is enhanced by higher initial schooling and life expectancy, lower fertility, lower government consumption, better maintenance of the rule of law, lower inflation, and improvements in the terms of trade. For given values of these and other variables, growth is negatively related to the initial level of real per capita GDP. Political freedom has only a weak effect on growth but there is some indication of a nonlinear relation. At low levels of political rights, an expansion of these rights stimulates economic growth. However, once a moderate amount of democracy has been attained, a further expansion reduces growth. In contrast to the small effect of democracy on growth, there is a strong positive influence of the standard of living on a country’s propensity to experience democracy.
This paper focuses on human capital as a determinant of economic growth. Although human capital includes education, health, and aspects of “social capital,” the main focus of the present study is on education. The analysis stresses the distinction between the quantity of education — measured by years of attainment at various levels — and the quality — gauged by scores on internationally comparable examinations.
For 116 countries from 1965 to 1985, the lowest quintile had an average growth rate of real per capita GDP of - 1.3%, whereas the highest quintile had an average of 4.8%. We isolate five influences that discriminate reasonably well between the slow-and fast-growers: a conditional convergence effect, whereby a country grows faster if it begins with lower real per-capita GDP relative to its initial level of human capital in the forms of educational attainment and health; a positive effect on growth from a high ratio of investment to GDP (although this effect is weaker than that reported in some previous studies); a negative effect from overly large government; a negative effect from government-induced distortions of markets; and a negative effect from political instability. Overall, the fifted growth rates for 85 countries for 1965–1985 had a correlation of 0.8 with the actual values. We also find that female educational attainment has a pronounced negative effect on fertility, whereas female and male attainment are each positively related to life expectancy and negatively related to infant mortality. Male attainment plays a positive role in primary-school enrollment ratios, and male and female attainment relate positively to enrollment at the secondary level.
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This paper presents empirical estimates of human-capital augmented growth equations for a panel of 21 OECD countries over the period 1971-98. It uses an improved dataset on human capital and a novel econometric technique that reconciles growth model assumptions with the needs of panel data regressions. Unlike several previous studies, our results point to a positive and significant impact of human capital accumulation to output per capita growth. The estimated long-run effect on output of one additional year of education (about 6 per cent) is also consistent with microeconomic evidence on the private returns to schooling. We also found a significant growth effect from the accumulation of physical capital and a speed of convergence to the steady state of around 15 per cent per year. Taken together these results are not consistent with the human capital augmented version of the Solow model, but rather they support an endogenous growth model à la Uzawa-Lucas, with constant returns to scale to "broad" (human and physical) capital.
Those who announce the demise of American's position as an economic world leader are, like the author of Mark Twain's obituary, a bit premature. Productivity and American Leadership examines and analyzes the long run productivity performance of the United States, comparing it with that of other industrialized countries. It shows that the U.S. record, both recent and over longer periods, is far better than is widely believed, although the authors offer no grounds for complacency. Methods of measuring productivity, their appropriate uses, and their implications for well being are covered and policies are proposed that will lead to a more productive economy. The books unique long term focus reveals that while the United States may currently be lagging behind other industrialized nations in terms of productivity growth, there is no evidence of a slowing of productivity growth in U.S. manufacturing or in our share of manufacturing employment in the industrialized world. Other industrialized economies are learning from the United States (as well as from one another) and are gradually approaching our productivity levels, while the United States returns to "normal" historical rates after a brief period of extraordinary postwar growth. Productivity and American Leadership examines numerous underlying factors that bring about changes in productivity - the shift from a manufacturing to a service economy, the movement toward a more information centered economy, savings and investment rates, changes in education and the key question of whether growth, by depleting the worlds natural resources, must mortgage the future.
Research increasingly stresses the role of human capital in modern economic development. Existing historical evidence -- mostly from British textile industries -- however, rejects that formal education was important for the Industrial Revolution. Our new evidence from technological follower Prussia uses a unique school enrollment and factory employment database linking 334 counties from pre-industrial 1816 to two industrial phases in 1849 and 1882. Using pre-industrial education as instrument for later education and controlling extensively for pre-industrial development, we find that basic education is significantly associated with nontextile industrialization in both phases of the Industrial Revolution. Panel data models with county fixed effects confirm the results.
Using cross-country estimates of physical and human capital stocks, we run the growth accounting regressions implied by a Cobb-Douglas aggregate production function. Our results indicate that human capital enters insignificantly in explaining per capita growth rates. We next specify an alternative model in which the growth rate of total factor productivity depends on a nation's human capital stock level. Tests of this specification do indicate a positive role for human capital.
Technological diffusion implies a form of 'conditional convergence' as lagging countries catch up with technological leaders. We find strong evidence of technological diffusion but not full convergence; differences in total factor productivity (TFP) persist even in the long run due to differences in geography and institutions. TFP differentials explain a large part of cross-country income differences in our model; our estimates of the rate of return to capital, labor and schooling are completely consistent with micro-economic studies, implying the absence of externalities in aggregate production.
Over the past decade, there has been an explosion of empirical research on economic growth and its determinants. Despite this large volume of work, many of the central issues of interest remain unresolved. For instance, no consensus has emerged about the contribution of capital accumulation versus improvements in total factor productivity in accounting for differences in economic growth. Nor is there agreement about the role of increased education or the importance of economic policy as determinants of economic growth. Indeed, results from the many studies on a given issue frequently reach opposite conclusions. And two of the main empirical approaches -- growth accounting and growth regressions -- have themselves come under attack, with some researchers going so far as to label them as irrelevant to policymaking. In this paper, we argue that, when properly implemented and interpreted, both growth accounts and growth regressions are valuable tools, that can -- and have -- improved our understanding of growth experiences across countries. We also show that careful attention to issues of measurement and consistency goes a long way in explaining the apparent contradictions among findings in the existing empirical literature. Thus, we combine growth accounts and growth regressions with a focus on measurement and procedural consistency to address the issues raised above.
There are two sources of inconsistency in existing cross-country empirical work on growth: correlated individual effects and endogenous explanatory variables. We estimate a variety of cross-country growth regressions using a generalized method of moments estimator that eliminates both problems. In one application, we find that per capita incomes converge to their steady-state levels at a rate of approximately 10 percent per year. This result stands in sharp contrast to the current consensus, which places the convergence rate at 2 percent. We discuss the theoretical implications of this finding. In another application, we perform a test of the Solow model. Again, contrary to prior results, we reject both the standard and the augmented version of the model.
Recent decisions by the Spanish national competition authority (TDC) mandate payment systems to include only two costs when setting their domestic multilateral interchange fees (MIF): a fixed processing cost and a variable cost for the risk of fraud. This artificial lowering of MIFs will not lower consumer prices, because of uncompetitive retailing; but it will however lead to higher cardholders’ fees and, likely, new prices for point of sale terminals, delaying the development of the immature Spanish card market. Also, to the extent that increased cardholders’ fees do not offset the fall in MIFs revenue, the task of issuing new cards will be underpaid relatively to the task of acquiring new merchants, causing an imbalance between the two sides of the networks. Moreover, the pricing scheme arising from the decisions will cause unbundling and underprovision of those services whose costs are excluded. Indeed, the payment guarantee and the free funding period will tend to be removed from the package of services currently provided, to be either provided by third parties, by issuers for a separate fee, or not provided at all, especially to smaller and medium-sized merchants. Transaction services will also suffer the consequences that the TDC precludes pricing them in variable terms.
This paper illustrates how convergence equations can be used to analyse the dynamics of the income distribution using a simple extension of standard techniques. Using data for a sample of OECD countries, I estimate an equation that relates growth in income per capita to the standard growth theory variables, government size and labour market performance indicators. The estimated model and the underlying data are then used in a convergence accounting exercise that yields quantitative estimates of the contribution of each of these variables to the relative growth performance of each country and to observed convergence in the sample.
This paper explores the applicability of the Nelson-Phelps approach to the modeling of human capital in economic growth for the sample of OECD countries. A case is made for confining the approach to the technology diffusion component and for combining it with the Lucas approach. For such a hybrid model, both the favoured interpretation of the Nelson-Phelps approach, as well as the Lucas approach, are supported by the evidence. The sensitivity of the findings is assessed with regard to the use of alternative human capital data sets, including quality (adjusted) measures, and with regard to data outliers.
This paper extends Coe and Helpman's (International R&D spillovers, European Economic Review, 39, 859–887, 1995) study of international R&D spillovers amongst OECD countries by including a general human capital variable which accounts for innovation outside the R&D sector and other aspects of human capital not captured by formal R&D. This results in somewhat smaller coefficient estimates for domestic R&D capital and international R&D spillovers, but they remain highly statistically significant. General human capital is found to affect TFP directly as a factor of production, and as a vehicle for international knowledge transfer associated with productivity catch-up amongst OECD countries. It seems to play a distinct role from R&D in the economic growth processes of these economies.
This study tests and compares the two major approaches to the modelling of human capital in growth regressions, i.e. the Lucas and the Nelson-Phelps approach, in the context of developing country models with international knowledge spillovers. On balance, the results seem to favour the Nelson-Phelps approach. Using human capital stock variables instead of flow variables, a positive role for human capital in the absorption of international knowledge spillovers other than embodied R&D spillovers is confirmed. The results suggest the importance of distinguishing between different types of international knowledge spillovers, as well as between different human capital sub-categories.
This article reviews the theoretical and empirical literature on the sources of medium-term productivity growth and provides an empirical analysis of labour and total factor productivity (TFP) growth in the business sectors of OECD economies. Higher education levels, low initial productivity levels, moderate labour force growth and low inflation are the factors found to be associated with faster TFP growth. Faster capital accumulation accelerates labour productivity growth, but no evidence is found for a TFP growth bonus. Neither this article nor the other empirical studies examined can explain a significant portion of the productivity growth slowdown.
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