Schooling and Distortions in a Vintage Capital Model

This paper integrates the analysis of choices on education and on technology adoption to study international economic disparities. Two candidate explanations are considered: differences in distortions that affect the cost of technology adoption and differences in the effectiveness of schools. The implications of these two factors for differences in output per capita, educational attainment, and the age of technologies across countries are assessed in a vintage capital model with technology-specific learning-by-doing. Predictions are obtained for a parameterized economy that matches U.S. aggregate observations and evidence on learning. Differences in investment distortions produce plausible correlations only if the major role of education is to improve the ability to learn technologies. On the other hand, differences in school effectiveness produce plausible results only if the role of education is to provide a productive ability that is independent of learning. Journal of Economic Literature Classification Numbers: I2, O1, O3, O4.