Human Capital and the Wealth of Nations

Joint with: Rodolfo E. Manuelli

No question has perhaps attracted as much attention in the economics literature as “Why are some countries richer than others?” In this paper, we revisit the development problem and reevaluate the role of human capital. The key

difference between our paper and recent work in this area is that we use theory to estimate the stocks of human capital, and that we allow the quality of human capital to vary across countries. When quality differences are allowed, we find that effective human capital per worker varies substantially across countries. As a result of this finding, we estimate that cross-country differences in Total Factor Productivity (TFP) are significantly smaller than those reported in previous studies. Moreover, our model implies that output per worker is highly responsive to differences in TFP and in demographic variables.

For more information, contact Dirk Krueger.