Beyond balanced growth: The effect of human capital on economic growth reconsidered

Abstract

Human capital plays a central role in theoretical models of endogenous growth. Nevertheless, the existing empirical evidence on human capital’s effect on economic growth is mixed. Part of this weak evidence might be the result of overly restrictive specifications of the estimated empirical growth models. A more flexible estimation framework’s results reveal that human capital does indeed have a strong positive effect on economic growth, but this effect differs substantially across countries. In particular, the evidence suggests that human capital has a stronger effect in countries in which the population faces favorable living conditions in terms of life expectancy and geographic characteristics, while the effects do not differ substantially between countries that differ with regard to their political institutions’ quality.