Distinguishing Between the Effects of Primary and Post-primary Education on Economic Growth

The paper follows Benhabib and Spiegel (Journal of Monetary Economics, Vol. 34, 1994:143–73) in examining the effect of human capital accumulation on economic growth. The paper is innovative in two ways. First, it takes the R&D‐based models more seriously. This delivers more structural specifications in which human capital affects growth as an input of final output and as a catalyst of technological innovation and imitation. Second, owing to data availability it is possible to disaggregate human capital and assign different roles to primary and post‐primary education. Regression estimates obtained from these alternative specifications suggest that the relative contribution of human capital to technology adoption and final output production vary by country wealth. More importantly, regression estimates suggest that primary education contributes mainly to production of final output, whereas post‐primary education contributes mainly to innovation and imitation of technology.     

Do Natural Resources Depress Income Per Capita?

Most evidence for the resource curse comes from cross‐country growth regressions suffers from bias originating from the high and ever‐evolving volatility in commodity prices. These issues are addressed by providing new cross‐country empirical evidence for the effect of resources in income per capita. Natural resource dependence (resource exports) has a significant negative effect on income per capita, especially in countries with bad rule of law or bad policies, but these results weaken substantially once we allow for endogeneity. However, the more exogenous measure of resource abundance (stock of natural capital) has a significant negative effect on income per capita even after controlling for geography, rule of law and de facto or de jure trade openness. Furthermore, this effect is more severe for countries that have little de jure trade openness. These results are robust to using alternative measures of institutional quality (expropriation and corruption instead of rule of law).     

Composition of International Assets and the Long‐run Current Account

We document the role of capital gains and losses for the current account that a country can sustain along a balanced growth path. While it is well know that growth allows a country to run a current account deficit and still keep its external debt stable as a share of GDP, the sensitivity of the current account to the composition of external assets and liabilities has received little attention. We show that this composition matters because several assets, such as equity or FDI, earn substantial capital gains that are not reflected in the current account. A country that is a net creditor in such assets can then sustain a larger current account deficit. Using a broad sample, we show that this aspect substantially tilts estimates of the long‐run current account towards a deficit among industrialized economies, with the opposite situation for emerging markets. We also show that industrialized economies are likely to benefit from predictable capital gains in the future.     

Institutional Quality Mediates the Effect of Human Capital on Economic Performance

This paper considers the relationship between institutional quality, educational outcomes, and economic performance. More specifically, we seek to establish the linkages by which government effectiveness affects per capita income via its mediating impact on human capital formation. Our empirical approach adopts a two‐stage strategy that estimates national‐level educational production functions that include government effectiveness as a covariate, and uses these estimates as instruments for human capital in cross‐country regressions of per capita income. Our results identify a significant and positive effect of human capital on per capita income levels, and partially resolves the inconsistency between macro‐ and micro‐level studies of the effect of human capital on income. The results remain robust to alternative specifications, extension to a panel setting, subsamples of the data and fully endogenous institutions.     

Eagles and Turkeys: Human Capital Externalities,Departmental Co‐authorship and Research Productivity

Lucas (1988) hypothesised that human capital externalities explain persistent productivity growth and become manifest via interactions between workplace colleagues. Consistent with the first part of this hypothesis, Fox and Milbourne (2006) concluded that an increase in the average level of human capital in Australian economics departments raised the research productivity of departmental members. This paper tests the robustness of this finding by using a direct, rather than a proxy, measure of human capital and confirms the existence of human capital externalities within Australian economics departments. But we extend the analysis in two important dimensions. Firstly, we investigate the second part of Lucas' hypothesis by testing whether the externality becomes manifest via co‐authoring. We find no evidence that this type of interaction is associated with higher research productivity, especially for higher quality outputs. Secondly, we control for the likely endogeneity of one's peer group via instrumental variables estimation. In this case, we find that the peer group effect disappears completely for the highest quality outputs but remains for research output more broadly defined.     

A MATCHED PAIRS ANALYSIS OF STATE GROWTH DIFFERENCES

The American states have provided a rich laboratory in which to examine influences on economic growth, physical capital, human capital, and a variety of policy variables. Existing studies typically use broad cross sections of all states or particular regional subsamples. Pairwise matching is an alternative design for better controlling of omitted variables. We estimate a growth model of U.S. states for 1997–2005 before and after applying different pairwise matching techniques. Our results indicate that sample estimates based on pairwise matching substantially improve the overall ability of the growth model to identify the growth‐enhancing effects of lower tax burdens in general and lower individual income‐tax rates in particular. These effects are more pronounced with narrower matching criteria. (JEL H00, C29, O40)     

Moment Estimation of the Probit Model with an Endogenous Continuous Regressor

We propose a generalized method of moments (GMM) estimator with optimal instruments for a probit model that includes a continuous endogenous regressor. This GMM estimator incorporates the probit error and the heteroscedasticity of the error term in the first‐stage equation in order to construct the optimal instruments. The estimator estimates the structural equation and the first‐stage equation jointly and, based on this joint moment condition, is efficient within the class of GMM estimators. To estimate the heteroscedasticity of the error term of the first‐stage equation, we use the k‐nearest neighbour (k‐nn) non‐parametric estimation procedure. Our Monte Carlo simulation shows that in the presence of heteroscedasticity and endogeneity, our GMM estimator outperforms the two‐stage conditional maximum likelihood estimator. Our results suggest that in the presence of heteroscedasticity in the first‐stage equation, the proposed GMM estimator with optimal instruments is a useful option for researchers.     

Inspiration vs. perspiration in economic development of the Former Soviet Union and China (ca. 1920–2010)

Here, we discuss the role of both perspiration factors (physical and human capital) and inspiration factors (Total Factor Productivity) in the economic development of the Former Soviet Union area (FSU) and China, ca. 1920–2010. Using a newly created dataset, we find that during the Socialist central‐planning period, economic growth in both countries was largely driven by physical capital accumulation. This finding follows logically from the development policies in place at that time. During their transition periods, (i.e., starting from the late 1970s in China and the late 1980s in the FSU), China managed to keep technical inefficiency of production factors in check, largely by massively increasing its human capital, thereby lowering the physical‐to‐human capital ratio. In contrast, the FSU accomplished a similar outcome largely through reducing its stock of physical capital. As a result, although there was little difference in technical efficiency between these two economies, China's emphasis on human capital formation made it easier for this country to improve its general productivity and to increase per capita growth. This changed in the late 1990s and early 2000s, when the FSU began to recover economically, regaining its 1990 levels of output and productivity.     

Human capital,innovation and productivity in Colombian enterprises: a structural approach using instrumental variables

ABSTRACT

In this paper we explore the R&D–innovation–productivity linkage for the Colombian manufacturing industry, paying special attention to the role of human capital. Using data from two firm-level surveys, the Survey of Development and Technological Innovation (EDIT) and the Annual Manufacturing Survey (EAM), we extend the model of Crépon, Duguet, and Mairesse [1998. ‘Research, Innovation and Productivity: An Econometric Analysis at the Firm Level.’ Economics of Innovation and New Technology 7 (2): 115–158] (hereafter CDM) by including human capital at the investment decision stage. We implement an instrumental variable methodology to correct the potential endogeneity that may arise with the inclusion of human capital. Our results suggest that human capital has a causal effect on research and development (R&D) investment decisions, the innovation behavior of the firm, and increases the labor productivity of the firm. The conclusions highlight the relevance of human capital in the surrounding literature which stands in contrast to prior work that has not included this variable.     

The Shape of the Income Distribution and Economic Growth – Evidence from Swedish Labor Market Regions

We analyze the association between income inequality and economic growth using 72 labor market regions in Sweden during the period of 1990–2006. Compared with studies of cross‐country data, the regional set‐up reduces problems with omitted variable bias and endogeneity as regions within a country share the same redistributive policies and institutions. Using population register data, highly accurate measures of growth and inequality (gini, Q3, p9075, p5010) are derived. OLS cross‐section and panel estimates imply that inequality between the 90 and 75th percentiles enhances regional growth and that the share of income falling to the third quintile reduces growth. These results no longer hold when we apply regions specific fixed effects and/or system GMM.     

COSTLY INTERMEDIATION AND THE POVERTY OF NATIONS*

This article has two goals: (i) to reduce the 7‐fold productivity differential required to explain the observed 33‐fold income difference between the richest and poorest countries of the world; and (ii) to explain cross‐country differences in the capital‐output ratio. To achieve the first goal we modify the production function of the standard neoclassical growth model to include public capital whose provision is subject to intermediation costs. For the second goal we distort private investment by introducing credit frictions. The model, quantified using cross‐country data, generates an income gap of 33 with productivity differences of only 3 under the measured variations in public and private capital. The required productivity gap declines even further, to 2.1, when we introduce a home‐production sector. On the second goal, however, credit frictions do a poor job of explaining cross‐country variations in the capital‐output ratio.     

Trust and foreign ownership: Evidence from intra‐European foreign direct investments

We use a novel firm‐level dataset to test whether trust affects the volume and the ownership structure FDI across Europe. Our methodology deals with the endogeneity of trust from the investor to the recipient country. We expect such a trust measure to affect investment decisions, and the associated knowledge capital, differently across types of foreign investors. In particular, this effect is expected to be stronger for industrial investors who possess transferable knowledge capital. The data confirm our predictions. Higher trust increases the number and volume of FDIs, but also the probability of co‐investing with a partner from the recipient country.     

CAPITAL MAINTENANCE AS A KEY DEVELOPMENT TOOL

We construct optimal growth models where labor resources can be allocated either to production, technology adoption or capital maintenance. We first characterize the balanced growth paths of a benchmark model without maintenance. Then we introduce maintenance activity via the depreciation rate of capital. We characterize the optimal allocation of labor across the three activities. Although maintenance deepens the technological gap by diverting labor resources from adoption, we show that it generally increases the long run output level. Moreover, we find that equilibrium maintenance and adoption efforts respond in opposite directions to policy or technology shocks. Finally, we find that the long‐term output response to policy shocks is slightly higher in the presence of maintenance.     

Rigid labour markets with trade and capital mobility: theory and evidence

Abstract We develop a multi‐country model with imperfect labour markets to study the effect of labour market frictions on bilateral trade flows. We use a framework that allows for goods trade and capital mobility and show that labour market imperfections exert opposite effects in the absence of capital mobility (the short run) and its presence (the long run), respectively. In the short run, a higher degree of labour market rigidity decreases the value of total trade, but increases the share of intra‐industry trade for a country that is larger than its trading partner. The reverse effects are observed when capital is allowed to cross country borders. Using data on unemployment and income distribution for 23 OECD countries, we compute the central parameter in our theoretical model that describes the degree of labour market rigidity. We use this new empirical concept to provide evidence for our theoretical findings by means of reduced‐form regressions as well as simulation results of a calibrated general equilibrium model.     

STATE‐LEVEL CAPITAL AND INVESTMENT: UPDATES AND IMPLICATIONS

This paper presents state‐by‐state capital stock and gross investment estimates for 1990–2007. I follow the methodology of Garofalo and Yamarik (The Review of Economics and Statistics, 84, 2002, 316–23) and apportion the national capital stock to the individual states using one‐digit NAICS income data. I then test the soundness of the data by estimating a Cobb–Douglas production function and a Solow growth model using a variety of panel data estimators. Under both models, I obtain estimates of the output elasticity for capital that are plausible and close to the observed national income share of one‐third. (JEL O47, O51, R11)     

The interactive effects of human capital and quality of life on economic growth

To bridge the gap in the quality of life (QOL) and economic growth literature and understand the reinforcing effects of QOL and human capital on economic development, we examine the interactive effects of these two factors on wage growth from 2000 to 2007 at the county level across the United States. First, a Rosen–Roback model is employed to estimate implicit values of amenities including climate, clean air and other natural attributes, which are used to generate QOL indices. Second, QOL, human capital represented by the share of college graduates, and their interaction serve as key variables in the wage growth model. An instrumental variable approach and location fixed effects are used to address endogeneity of human capital and control for location-specific unobservable characteristics. Results suggest that human capital and QOL significantly contribute to economic growth and the growth effects are even larger in nonmetropolitan counties. Importantly, we find that the effect of human capital on growth is larger in high-QOL counties and QOL enhances the effect of human capital on growth. Our results provide empirical support for community development strategies through providing utility-enhancing amenities that improve QOL and retain human capital.     

Methods of privatization and economic growth in transition economies1

We examine how different methods of privatization might have affected growth in transition economies. Using several econometric specifications, including fixed effects and GMM, we estimate a cross‐country panel growth model for 1990–2003. We find only voucher privatization to have been significantly associated with faster growth. Moreover, neither private sector development per se nor capital market development exercised a significant influence. We speculate that voucher privatization may have been effective because of the speed with which links between firms and the state were severed.     

HEALTH INVESTMENT AND ECONOMIC OUTPUT IN REGIONAL CHINA

Using a 29‐year (1978–2006) panel of provincial‐level data from China, this article investigates the role of health capital in a human capital model of economic output. Robust evidence is found through panel cointegration analysis that health capital has a significant and positive effect on the Gross Regional Product in China; the effect being stronger in the inland regions compared to the coastal areas based on estimates that account for regional heterogeneity. This article highlights and discusses the potential role of diminishing returns to health investment in this globally important area. (JEL I15, R11, C23)     

Does Intelligence Affect Economic Diversification?

This paper extends the growing literature on knowledge economy by investigating the effect of intelligence on economic diversification. Using a battery of estimation techniques that are robust to endogeneity, we find that human capital has positive correlations with export diversification, manufactured added value and export manufactures. This empirical evidence is based on a world sample of 170 countries for the year 2010. The findings have significant implications for the fight against the Dutch disease. In essence, investing in human capital could bring economic diversity and therefore dampen negative external shocks related to resource‐dependence. Other knowledge‐economy implications are discussed.     

社会网络层次与农民工工资水平——基于身份定位模型的分析

本文在身份定位模型框架下研究社会网络层次对农民工工资水平的影响。基于2009年北京市农民工调查数据的计量结果,支持了高层次社会网络影响归属该网络的农民工、使得后者工资水平提高的假设;支持了高层次社会网络除了帮助农民工找工作之外,也可以在就业后通过影响行为模式和生产率来提高工资水平的假设。本文用倾向得分匹配的平均处置效应处理可能的内生性偏误,结论通过了较为严格的稳健性检验。政府鼓励农民工构建基于城市就业和生活的新型社会关系以及高质量的社会网络,不仅可能提高农民工的劳动生产率和相应的工资水平,而且可能提高整个国家人力资本投资的回报水平和劳动生产率水平。