Economic Growth and the Quality Composition of Human Capital

Abstract

There are contradictory views in the literature regarding the relationship between education and economic growth. According to Lucas (1988), accumulation of human capital over time that boosts economic growth, whereas Nelson and Phelps (1966) argue that the stock of human capital is important for economic growth. Romer (1990a) concludes that if stock of human capital is employed in the research sector, technological progress is greater and this leads to faster growth. Several empirical studies have been carried out on the nature of the relationship between human capital. Also whether quality composition of human capital is important for growth or not has also been dealt with in the literature but there are some problems with the treatment. This study relates to the relationship between quality composition of human capital and technological change and the mechanism through which technological change affects long run growth rates. This study relates to 55 countries over fourteen year periods from 1980 to 2007. We find that the average stock of human capital is important to increase economic growth. Stock of average human capital affects economic growth through its effect on growth rate of capital stock. However the stock of tertiary educated persons is not a significant determinant of growth but stock of secondary and primary educated persons are important. This may suggest that the stock of skilled labour affects the rate of technological change primarily through diffusion of technology and not through R&D activity in the economy. Secondary or primary schooling which is necessary to absorb existing technologies but probably not sufficient for R&D activity turns out to be a significant determinant of growth rate of output. In this study, stock of human capital affects economic growth through its effect on capital productivity as well as technological diffusion.