The Uzawa–Lucas model without scale effects: theory and empirical evidence

Abstract

Numerous cross-sectional tests have been performed to evaluate the predictions of recent growth theories such as the Uzawa–Lucas growth model. In a series of papers and in his book, Jones [Q. J. Econ. 110 (1995a) 495; J. Political Econ. 103 (1995b) 759; The upcoming slowdown in US economic growth, Stanford University, Stanford] has shifted the attention toward the time series predictions of endogenous growth models. By contrasting endogenous growth models with facts, one is frequently confronted with the prediction that levels of economic variables, such as human capital, imply lasting effects on the per capita growth rate of an economy. As stylized facts show, measures of education or human capital in most advanced countries have dramatically increased, mostly more than the gross domestic production (GDP). Yet, the growth rates have roughly remained constant or even declined. In this paper we modify the growth effects of education and human capital in our variant of the Uzawa–Lucas growth models and test the model using time series data for the US and Germany from 1962.1 to 1996.4. We consider two versions. In the first, we treat the time spent for education as exogenously given and we neglect the external effect of human capital. In the second version, the time spent for education is an endogenous variable and the external effect of human capital is taken into account. Our results demonstrate that the model is compatible with the time series for aggregate data in those countries. The parameters fall into reasonable ranges.