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HUMAN CAPITAL AND ECONOMIC GROWTH: EVIDENCE FROM DEVELOPING COUNTRIES* by Hrishikesh D. Vinod** and Surendra K.

Kaushik*** Abstract Human capital in the form of education has been used to explain GDP ro!th in au mented Solo! models. A statistically si nificant coefficient for human capital "ariable in these models !as recently reported for #$%D countries usin recent data. &e use time series and panel re ressions for data on a roup of ei hteen lar e de"elopin countries for the period '()*+*,,'. -his study confirms and extends results by #$%D and other similar studies. Since most of our models ha"e a si nificant human capital re ressor in such a study of de"elopin countries. it is important for policy re ardin educational opportunities. and increased emphasis and focus on education and technolo y in de"elopin countries. Key Words/ Dependent Data 0ootstrap. Schoolin . $ducational $xpenditures. $r odic -heorem. I. Introduction -he traditional Solo! 1'(234 theory of economic ro!th does not explicitly measure the role of human capital. chan e in He found that the increased use of capital explained '*.2 percent of the

ross output per man+hour !hile the concept of technical chan e explained the

5residual6 )7.2 percent. 8ater it !as reali9ed that much of this residual mi ht be due to human capital. Hence researchers de"eloped au mented Solo! models. !hich contain human capital as a re ressor in explainin GDP ro!th.

*-he authors thank the 8ubin School of 0usiness of Pace :ni"ersity for partial fundin and ;ames <in %hen. =adhika =an an and Demetrios Stamoulakis for research assistance for this paper. -hey also thank &illiam ;. 0aumol. #ded Galor. >rank %. Geno"ese. Kathleen ?. 8an ley. =obert ?. Solo!. 8a!rence H. Summers. ?ichael S9enber . an anonymous referee. and others for encoura in comments on earlier "ersions. **Professor of $conomics. >ordham :ni"ersity. @A ',B2) 1"inodCfordham.edu4 17')4 )'7+B,32

***Professor of >inance. 8ubin School of 0usiness Pace :ni"ersity. ' ?artine A"enue. &hite Plains. @A ',3,3. 1skaushikCpace.edu4. 1('B4 B**+BD2,

-he topic is important in the context of education and human capital policies and bud et allocations in de"elopin countries. Some "ersions of au mented models are found in =omer 1'((,4. 0arro and Sala+i+?artin 1'((24. Kni ht. 8oya9a. and Villanue"a 1'((D4. 0enhabib and Spie el 1'((B4 and 8ucas 1*,,*4. :sin a "ariety of older data and standard estimation and inference techniEues these authors did not find human capital to be statistically si nificant. 0arro and 8ee 1'((D4 constructed a measure of human capital based on the number of years of schoolin of adults *2 or older for '*( countries. Ho!e"er. 0arro and 8ee 1'((B. '((34 or %aselli. $sEui"el and 8efort 1'((34 did not find any uniEue importance of the human capital "ariable. ?anki!. =omer and &eil 1'((*. hereafter F?=&G4 state that/ Fparticularly for the de"elopin countries. in"estment in human capital also becomes more Euantitati"ely important !hen a more open tradin en"ironment and a better public infrastructure are in place.G Ho!e"er. -emple 1'(()4 applies robustness tests to ?=& results and does not find human capital to be si nificant. 0y contrast. ;udson 1'(()4 studies the efficiency of existin educational allocations in a panel of countries. He uses cross+country ro!th decomposition re ression to sho! that the correlation of human capital !ith capital accumulation and GDP ro!th is not si nificant in countries !ith poor allocations but is si nificant and positi"e in countries !ith better allocations. -hus better allocations and open tradin en"ironment mi ht re"erse the conclusions re ardin the si nificance of human capital. since the earlier doubts !ere based on older data. ?anki!. =omer and &eil 1'((*. hereafter F?=&G4 state that/ Fparticularly for the de"elopin countries. in"estment in human capital also becomes more Euantitati"ely important !hen a more open tradin en"ironment and a better public infrastructure are in place.G Ho!e"er. -emple 1'(()4 applies robustness tests to ?=& results and does not find human capital to be *

si nificant. 0y contrast. ;udson 1'(()4 studies the efficiency of existin educational allocations in a panel of countries. He uses cross+country ro!th decomposition re ression to sho! that the correlation of human capital !ith capital accumulation and GDP ro!th is not si nificant in countries !ith poor allocations but is si nificant and positi"e in countries !ith better allocations. -hus better allocations and open tradin en"ironment mi ht re"erse the conclusions re ardin the si nificance of human capital. since the earlier doubts !ere based on older data. =ecently many de"elopin countries ha"e opened up their markets to lobal competition and are installin the needed kno!led e infrastructure. Has the time come to start in"estin in

human capitalH 0assanini. Scarpetta and Visco 1*,,,4 and 0assanini and Scarpetta 1*,,*. *,,'. F0aSG hereafter4 use the data for #$%D countries to find that human capital is statistically si nificant. -he issue is "ery important for de"elopin countries. ?amuneas. Sa""ides and Sten os 1*,,34 also find a positi"e impact of human capital on economic ro!th in a roup of hi h. middle. and lo!+income countries across continents consistent !ith 0aS. -his paper applies the 0aS "ersion of the au mented Solo! model to a panel of ei hteen lar e de"elopin countries o"er t!enty years 1'()*+*,,'4 measurin the importance of human capital in explainin the GDP ro!th. An earlier "ersion of this paper used VinodIs 1*,,D. *,,B4 ne! ?$ bootstrap for Fdependent data.G !hich !as de"eloped as an alternati"e to the mo"in blocks bootstrap for inference in financial economics. &e note in passin that the use of modern bootstrap inference tools support the results reported here. &e are usin a lar er sample of important de"elopin countries !ith more recent data. =ecent less formal data analyses under the &orld $ducation Jndicators 1&$J4 pro ram has de"eloped ne!er education indicators for the follo!in de"elopin countries/ Ar entina. 0ra9il. %hile. %hina. $ ypt. Jndia. Jndonesia. ;amaica. ;ordan. ?alaysia. Para uay. Peru. the Philippines. the =ussian >ederation. Sri 8anka. -hailand. -unisia. :ru uay and Kimbab!e. Soto

1*,,*4. Karine -remblay 1*,,*4 find that education recei"es B.( L of GDP in #$%D. B.*L in &$J countries and 2.2L of national !ealth in both. -here is a more limited access to upper secondary and tertiary education in &$J compared !ith #$%D countries. Accumulation of human capital impro"es economic ro!th throu h many channels and externalities. &orld 0ank 1'(((4 finds that education is the sin le most important key to po"erty alle"iation and that tertiary education increases income from )*L to D,,L in &$J countries. &orld 0ank 1*,,,4. and %ohen M Soto 1*,,'4 find a positi"e correlation bet!een the number of years of schoolin and per capita income ro!th from '(3, to *,,,. -hus the informal analyses also point to a need to do more formal study of this paper. -he plan of the remainin paper is as follo!s. Section * describes the data and briefly re"ie!s the endo enous ro!th theory behind the estimation eEuation. Section D describes our estimates based on time series and panel data. Section B has our conclusions.

II. T ! D"t" "nd Mod!# E$ti%"t!$ >irst let us briefly re"ie! the ?=& model on !hich the 0aS model is based. 0ein an au mented Solo! model. one starts !ith a constant returns to scale production function !here output is a function of capital 1re ular and human4 and au mented labor. 8et Y. K, H, L denote output. physical capital. human capital and labor. respecti"ely. @o! the startin production function is/
Y 1t 4 = K 1t 4 H 1t 4 ( A1t 4 L 1t 4 )'

1*.'4

!here and are parameters and A is the au mentation of labor. -he ori inal Solo! model is a special case of 1*.'4 !ith N,. >irst rescale the Euantities in 1*.'4 to per unit of Feffecti"eG labor input and use the lo!er case letters to denote/ y N Y/AL. k = K/AL. and h N H/AL.
y 1t 4 = k 1t 4 h1t 4

1*.*4

8et us omit 1t4 from all expressions in the seEuel !hene"er !e do not expect any confusion. -akin natural lo arithms of both sides of 1*.'4 !e ha"e/ ln y N ln k O ln h -he deri"ati"e of both sides !ith respect to time 1dPdt4 yields/ 1'Py4 1dyPdt4 N 1Pk41dkPdt4O1Ph41dhPdt4 1*.D4 1*.B4

As in the Solo! model. let 8 and A ro! exo enously at rates n and . respecti"ely. by the relations/ 81t4N 81,4exp1nt4 and A1t4NA1,4exp1 t4. After takin lo s. ln81t4N ln81,4 O nt.

Differentiate !ith respect to t and denote the time deri"ati"e by a po!er FQG to yield/ 8Q Nn8. Similarly. !e ha"e AQN A. Jf constant fractions 1shares sk and sh4 of output are in"ested in physical and human capital. and if is the depreciation rate. then the e"olution of k NKPA8 or effecti"e labor is o"erned by/ kQ1t4N sk y1t4 1nO O4 k1t4. -he e"olution of human capital is o"erned by/ hQ1t4N sh y1t4 1nO O4 h1t4. 1*.24 1*.34

-he steady state 1by definition4 means kQ N , N hQ. implyin that the ri ht hand sides of 1*.24 and 1*.34 are 9ero. Denotin &N'P1nO O4. steady state implies/ y&NkP sk NhP sh. -hat is. !e ha"e t!o useful relations/ hNk shPsk and kNhskPsh. @o! usin 1*.*4 yN kh NkR1k sh4PskS NkO R shPskS !e can eEuate the ri ht side of 1*.24 to 9ero !hile yieldin a function of k alone as &skkO R shPskS Nk. -his is re!ritten as k*NR&sk' sh NS'P1'4 And similarly. h*NR&sh' sk NS'P1'4 1*.74 1*.)4

@o!. the steady state production function 1*.D4 becomes/ ln yN ln k* O ln h*. =ecall that yNAPA8. !here A1t4NA1,4exp1 t4 implies ln AP8 N lnA1,4 O t O ln k* O ln h*. After substitutin 1*.74 and 1*.)4 this yields the follo!in eEuation for steady state per capita income y* dependin on population ro!th n. ro!th rate 2 of A1t4 and factor shares/

ln A1t4P81t4N lnA1,4 O t R1O4P1'4Sln 1nO O4ORP1'4S ln sk O R P1'4Sln sh.

1*.(4

-his eEuation is an extension of the Solo! model to include in"estment in human capital. @ote that the last three terms in 1*.(4 !hose coefficients in"ol"e and add up to 9ero. A test of the ?=& model !ould be to check if this holds in obser"ed data. Since the data on the rate of human capital accumulation 1Nln sh.4 is harder to et. it is re!ritten by ?=& in terms of level of human capital as/ ln A1t4P81t4N lnA1,4 O t RP1'4Sln 1nO O4ORP1'4S ln sk O R P1'4Sln h*. 1*.',4

@ote a ain that an empirical test !ould be to check if the coefficients of the last three terms add up to 9ero. -he hypothesis is not reTected by the data in ?=&. Human capital is not subTect to diminishin returns to scale. similar to land and some forms of physical capital. Hence !ith the presence human capital in the production function it is temptin to make economic ro!th explicitly endo enous. ?=& incorporate endo eneity by studyin beha"ior out of steady state y*. -hey use a -aylor series approximation for ln y1t4 near ln y* and !rite / ln yQ N Rln y* ln yS !here N 1nO O4 1'4. -his is a differential eEuation !hose solution is/ ln y1t4 N 1 ' U exp1t4 4 ln y* O exp1t4 ln y1,4 1*.''4 1*.'*4

Jf 1*.'*4 is a solution. the time deri"ati"e of the ri ht side must eEual the ri ht side of 1*.''4. -ime deri"ati"e of exp1t4 is exp1t4. -he time deri"ati"e of the ri ht side of 1*.'*4 is exp1t4 ln y* exp1t4 ln y1,4. =e!rite the time deri"ati"e by usin 1*.'*4 to replace its ln y1,4 term by ln y. -hen the exp1t4 term cancels and !e ha"e the ri ht side of 1*.)4. pro"in that 1*.'*4 is indeed a solution for 1*.''4. -he estimable eEuation is i"en upon substitution for y* from 1*.34 on the ri ht side of 1*.'*4.

-he 0aS deri"ation uses a different scalin . Jnstead of definin yNAPA8 they define it as APA and similarly for capital and labor. -his makes the deri"ations some!hat complicated. >or example. instead of 1*.''4 0aS ha"e/ 1*.'D4 ln1 y1t4 P A1t4 4ln1 y1t'4 P A1t'4 4N 14Rln1 y*1t4 P A1t4 4ln1 y1t'4 P A1t'4 4S !here 14 N 'exp1 t4. 0aS also replace the y* in 1*.'D4 !ith an expression similar to 1*.(4 of ?=& and state a possible re ression eEuation as/ 1*.'B4 ln y1t4N ln y1t+'4OR P1'4Sln sk OR P1'4S ln h O ' ln h *ln1 OnO4 OD O ln A1,4O t !here denotes the first difference. '. * and D are functions . and 1nO O4. Since the depreciation rate is fixed o"er time. it mer es !ith the intercept of the re ression 1*.'B4. An ad"anta e of this formulation is that it does not lend itself to any simple testable implications on the coefficients. 0y contrast. sum of three re ression coefficients must sum to 9ero for the ?=& model 1*.',4 to be empirically supported. -he contribution of endo enous ro!th theory in 0aS formulation is that it helps the

econometrician !ith a list of candidate re ressors/ Rln y1t+'4. ln s k . ln h. ln h. ln1 OnO4. . ln A1,4. and tS. -hey also su est usin time dummies for a nonlinear trend. ?oreo"er. 0aS

simply add 1 ln sk4. 1 ln n4 as short run re ressors and propose an Ferror correctionG form familiar from the unit root literature in econometrics. Since their additional re ressors introduced for econometric con"enience are not in 1*.'B4. one is free to exclude them. Appendix ' is de"oted to data details includin sources and precise definitions. GDP is Gross Domestic Product. GDPm' is la ed GDP by one year 1mN 5minus64. H is human capital as measured by percenta e of literate adults 1'2 years of a e and abo"e4 in the population. K is ross physical capital formation and $@ is ro!th rate of labor. %oulombe et al 1*,,B4 conclude that amon alternati"e measures of H our choice outperforms measures based on years of

schoolin . Jn any case. consistent and lar e enou h 1') countries. *, years4 data for other 7

measures are una"ailable. A study of 'B #$%D countries 1%oulombe. -remblay and ?archand *,,B4 reports that measurin H based on literacy is superior. Jn future !ork !e expect to study se"eral measures of H. since !e !ish to study. amon other thin s. returns to hi her education needed for the computer a e. -he prefix 8n stands for natural lo arithm and the prefix D represents the first difference. 8nK is lo K and D8nK is annual chan e in physical capital formation. Similarly. D8nH. is annual chan e in human capital constructed from the data on H and D8nGDP is ro!th in GDP. often a"ailable directly !ithout usin the first difference of lo of GDP. -J? denotes a seEuence of numbers to represent t as the re ressor in the last term of 1*.'B4.

III. E%&iric"# E$ti%"t!$ o' t ! I%&ort"nc! o' Hu%"n C"&it"# -his section has t!o subsections for reportin the results from t!o "ie!s of our data/ pure time series !ith -N*, and panel of ') indi"idual countries. III.i. Ti%! S!ri!$ E$ti%"t!$ R-able * and >i ures '. * and D o here.S @ote that !e ha"e a separate time series for each of the ') countries. $ach country has its o!n indi"idual institutional structure and distinct array of physical and human endo!ments. =ather than poolin the data for different countries into one. it may be !orth considerin the model of 1*.*4 for each country separately. -able * reports the results of such direct time series estimation. &e ha"e used the bold font to focus attention on the column for 8nH. the re ressor 1or input4 representin lo of human capital. -he 8nH coefficient. based on the double lo estimation. !hen interpreted as a direct elasticity of GDP !ith respect to human capital. sho!s that it is lar er than ' for 'D of the ') countries. -he positi"e and si nificant elasticity estimates ran e from '.* to B.7. -he numbers in >i ures ' to D refer to countries as listed in the column entitled FidG in -able *. -he list is by the GDP order !ith lar er rank number representin a )

lar er GDP. >i ure ' has the re ression coefficients 10eta4. >i ure * has the correspondin Student6s t "alues and >i ure D has standardi9ed re ression coefficients. All fi ures tell the same story that 8nH is enerally an important re ressor. Symbols for re ressors are described in Section * and further details are i"en in Appendix ' for data. III.ii. Poo#!d P"n!# D"t" E$ti%"t!$ =ecall that our panel consists of the top ei hteen countries ranked by the GDP. =ecall that the first column of -able * lists the GDP rank from the lo!est to the lar est and the second column has the country name. #ur panel data re ression !as implemented by 8J?D$P 1"ersion 74 soft!are on Pentium JJJ processor runnin at )2, ?H9. &indo!s ?$ operatin system. &e find that there is si nificant heteroscedasticity and correlation across countries. &e assumed no si nificant autocorrelation !ithin country. to reduce the number of parameters to be estimated !ith limited data. Since 8nGDP is hi hly correlated !ith 8nGDPm'. the inclusion of la ed 8nGDP causes multicollinearity. and had to be deleted. e"en thou h the study by #$%D did include it. Similarly !e are not includin as re ressors the first differences of 8nH. 8nK and $@. because they do not contribute ne! information into the model. !hile makin the estimates subTect to collinearity. Since the likelihood ratio statistic exceeds the critical "alue at the (( percent le"el !ith nN'). !ith n 1n+'4P*N'2D de rees of freedom. Since a textbook -able for the %hi+sEuare distribution usually oes only up to ',, de rees of freedom 1df4. !e use a computer pro ram for in"erse of the cumulati"e distribution function to find the rele"ant tabulated "alues 1')*.( at the (2L le"el and '(3.3 at the ((L le"el4 for '2D df. #ur obser"ed "alue of the likelihood statistic DBB.2' ob"iously exceeds both the tabled critical "alues. Hence. !e reTect the null hypothesis that the off+dia onal correlations are 9ero. Here !e are referrin to the ')') correlation matrix o"er time across ') countries based on *, time series data points !hose off dia onals are found to be

non9ero.

-he 8J?D$P soft!are reco ni9es this. allo!s for it. and also allo!s for

heteroscedasticity in obtainin our estimates in -able D. 1-able D oes about here4 -he results in -able D indicate the positi"e si n for 8nH and the rele"ant Student6s t ratio for 8nH exceeds'*,,. Jn fact. all t statistics are "ery lar e in -able D. Since the ne ati"e si n of the coefficient of the lnK re ressor does not seem plausible. !e seek alternati"e specifications. -he model for -able D has '73 parameters estimated !ith D3, obser"ations. -he results in -able D implicitly assume no si nificant autocorrelation !ithin each country. thereby keepin the number of parameters to be estimated at '73. 1-able B oes about here4 Jn -able B !e introduce three more re ressors than in -able D and the model ends up !ith '7( parameters !ith D3, data points. @ext. !e allo! for !ithin+country autocorrelations also. and report the results in -able 2 implyin '(B parameters to be estimated !ith D3, obser"ations. 1-able 2 oes about here4 All panel data re ressions in -ables D to 2 to ether su est statistically si nificant and

positi"e coefficients for 8nH. the human capital "ariable of main interest in this paper. Due to shorta e of space here. further tests and confirmation of robustness of the results in this paper usin ?aximum $ntropy for -ime Series Jnference !ill be reported in a separate follo!+up paper as the importance of human capital "ariable economy. ro!s !ith lobali9ation of the !orld

IV. Conc#u$ion$ "nd Po#ic( I%&#ic"tion$ @ote that much of the earlier literature did not find a clear and stron statistical support for education bein important for ro!th and de"elopment. if one insisted on a lar e sample of se"eral de"elopin countries o"er many years. Hence. in"estment in human capital has remained ',

a lo! priority compared to physical capital. -his study applies an array of alternati"e statistical methods based on t!enty years of data for a select roup of ') de"elopin countries. &e find that human capital 18nH4 has a statistically si nificant impact on economic ro!th in lar e de"elopin countries. -herefore. our results support a recently introduced modest shift in the direction of increased spendin on education by the &orld 0ank. international aid a encies. and de"elopin countries themsel"es. All #$%D countries ha"e at least ', percent of their population !ith colle e le"el education. Jreland is the best example of the fruits of in"estin in education in the last thirty years. -he remainin '7, countries can pursue that tar et by in"estin in human capital.

Generally. Asian countries that ha"e in"ested in human capital since &orld &ar JJ ha"e made reat leaps in their standard of li"in . ?alaysia. Philippines. -hailand. -urkey. and %hina are ood examples of economies achie"in ro!th based on human capital in recent years. Jndia is

the most dramatic example of doublin its ro!th rate in recent years mainly from kno!led e+ based industries of computer soft!are. call centers. pharmaceuticals. chemicals and biotechnolo y in recent years. $ducated but unemployed labor in '((, is the pro"erbial cash co! in *,,3 !here Jndia6s forei n exchan e reser"es ha"e increased from a mere VD,, million to o"er V'B, billion in that time period. All of these countries also ha"e statistically si nificant impact of human capital on ro!th in this study. Jn most countries. a one percent increase in literacy increases ro!th by '.* to B.7 percent. -herefore. de"elopin countries should increase their human capital from their o!n sa"in s. support from bilateral and multilateral sources of aid and loans. as !ell as fundin from pri"ate capital markets. Debt relief for the poorest countries proposed by the de"eloped countries and multilateral institutions can also be tied to buildin education and technolo y resources for sustainable ro!th to increase incomes.

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'D

D'. :@$S%#P#$%D. >inancin $ducation U Jn"estments and =eturns/ Analysis of the &orld $ducation Jndicators. '+*DB. 1*,,*4. D*. H.D. Vinod. %onstructi"e ensembles for time series analysis a"oid unit root testin . *,,D Proceedin s of the American Statistical Association. Statistical %omputin Section R%D+ =#?S. 1American Statistical Association. Alexandria. VA4. 1*,,D4. DD. H.D. Vinod. =ankin ?utual >unds :sin :ncon"entional :tility -heory and Stochastic Dominance. ;ournal of $mpirical >inance. ''1D4. D2D+D77. 1*,,B4. DB. &orld 0ank. &orld Product and Jncome+ Jnternational %omparison of =eal Gross Product.1http/PP!!!.!orldbank.or PdataPicpPpdfP!orldL*,productL*,and L*,income.pdf4. 1*,,*4.

-A08$ ' Descripti"e Variable A$A= D8nGDP 8nGDPm' 8nK 8nH $@ D8nK D8nH D8n@ Statistics ?ean '(('.2 D.)B$+,* *D.(,*( D.,,() '.D77' *.D27* +'.*,$+,D '.73$+,* +'.D3$+,*

Std.De". 2.77BD ,.'7'2 '.)(B) ,.BBDB ,.3'(D ,.37,2 ,.'3B( B.('$+,* ,.')7B

?inimum '()* +,.)'23 ').3(() '.*2** +,.2733 ,.77BB +'.7DDD +,.'D3* +'.2,2(

?aximum *,,' ,.3')3 *7.7,7( B.D,27 *.*'B3 D.)2B3 '.*'2) ,.2)D' '.*2B'

%ases D3, D3, D3, D3, D3, D3, D3, D3, D3,

'B

-A08$ * Jndi"idual %ountry #8S -ime Series =e ressions 1'()*+*,,'4 Summary =esults Dependent Variable/ D8nGDP
JD ' %ountries 8iberia %oeff. t * Haiti %oeff. t D : anda %oeff. t B ;amaica %oeff. t 2 Kenya %oeff. t 3 :ru uay %oeff t 7 @i eria %oeff Jntercept *.)BB') ) ,.73D7' ) '7.',*( 2 D.*'D32 ) 2.72B7( D *.,77B' ' 2.D'3,7 * '.23DD, ' '7.(',3 2 *.B(B2) B.23'(' D '.D7DB) 2 B.7,*22 8nGDPm' +,.')D7) +'.2B7( +,.73D)( +D.'327' +,.',D)2 +,.2((B2 +,.**,72 +,.(*(3 +,.('2,) +D.2323' +,.D,37( +*.7D3DD +,.D)3)3 8nK ,.)2,2( * '.33777 7 +,.D372* +*.)B7)2 +*.*'7)2 +'.7B2)B +'.D2'22 +'.3'77) ,.(,)3( ' '.72,,D 2 +,.,'*3B +,.,D('B ,.,*,() LnH )*.+*,-. )*./,01. *.122+3 3 ..22*,+ . .../*1* 3 2.3/01+ 3 ..+,/.+ 2 2..1--/ 2.,+023 2 2.-*00* / 2.002-+ + 2...1-+ 3 *.+-0,0 $@ +,.DDD*B +*.,D2B3 +,.DB7*7 +'.23'23 +,.,**3* +,.'2B(( +,.'2B3) +'.,'DB* +,.2)3*2 +*.**)) +,.D*DDD +'.D*,B* +,.'*(32 D8nK +,.7D2D' +,.3(*2B ,.'337*' '.DD,,*) '.DDD77' *.*''732 ,.D)3(2) ,.3732)* +,.27('* +'.BB*,B ,.2(32,7 '.)7*)22 +,.D,BB) D8nH 3.B)*'(* *.)'*,2B +,.22,*( +'.,B773 +*.,(DD2 +*.*B(37 +*.22)27 +'.,3),* +,.D*3(( +,.*B)B2 +'.B7B2' +'.'*7)( **(.3B7D D$@ ,.,3,)** ,.BB(D7 ,.222*D) '.*(D)D7 ,.7,D(') *.*77'2* ,.*373'7 '.3D73'B ,.D2,,3( '.''(*73 ,.'3,(B2 ,.)22B2' ,.D,'333 ,.7D7(33 ,.2BB2(B *.,2,,') ,.)22'** ,.7D'*DB B.33B,3D ,.77'3D ,.2(2B'D *.2**)BD ,.3(3)*7 ,.B)223) '.3')',' ,.3D7373 ,.B*3D* D.,'7,7 ,.7'**37 ,.2,7D*2 '.732*2( =+SE ,.77')B( AdT+= SE ,.2(272' > *.2*3D)*

7 t ) Peru %oeff t ( Pakistan %oeff. t ', Philippines %oefficient t '' ?alaysia %oefficient t '* -hailand %oefficient t 'D Jndonesia %oeff. t 'B -urkey %oeff t '2 Ar entina %oefficient 322D2 '*.D)73 2 *.'7)*7 D 7.*B233 ( *.7733( 7 ).D7)B( '.333D, ( ',.()D) D *.7B3D2 * ',.)2B7 '.'*7'( 2 B2.D)2) 3 D.'D(*( ( ',.2),* B *.B))(3 ( '(.7(3B ) +*.B'(22 +,.)33*( +'.(23B3 +,.*2B(' +*.**(D* +,.B,2D' +'.*D27* +,.37',7 +*.D*')( +,.3*23B +'.D')D3 +'.D2)'( +B.*7**2 +,.3BD +*.2)2*( +'.,7*(D

2 ,.,(,,, * +,.2(7(3 +'.D)')( +,.3'*( +*.72'BD +,.,DB33 +,.'7B2D ,.*'',2 ) ,.2B*,2 * ,.)3B,D ) '.*D()( D '.(7*)2 D *.D))73 * ,.(B(D, 2 *.D*,') ) +,.D(D3

/ 2.0*00. / /.,+*/* 2.32+,1 + *.*33,0 3 2..+-,. / ..*/+.3 + 2.,2/+1 -.2.2*, ..1//3/ 2...+32 / 2.3,1., + ),./20,/ )2.+1+.+ 2..-0+1 ..22011 + -.30,13 0 +,.D3'B3 ,.2,B'77 ,.('3D*3 ,.*D,,,' ,.((,B'' +,.)3B)7 +*.*,*(2 +,.*3'B2 +,.(D7'3 +,.',(B3 +,.B,BD3 +*.())'( +*.B'(D2 ,.B*BB2B '.B,D2,2 ,.B3)D)7 +'.B2DB ,.)23)(7 '.*3)DD( ,.*7()2( '.BD2'BB ,.,()7BB ,.2,2*( ,.*),3() ,.(*2,B( +,.'B)(' +,.D('* ,.23'''* ,.2(3 ,.'7)'B* ,.B3B7'7 '.,,',7* 322D2 +'.B77B +,.3B(D2 +,.'(B'* +'.),)(3 +,.)'7BD +,.2'23( +*.',((D +'.,**D' +D.3*,B +*.,7*(* '.373(,B ,.32B)B3 +,.3*DD2 +,.2()7' +*.,B3,B ,.3,D,(' ,.D2'D7* ,.B(72*( +,.'DD'B +,.7)3 ,.(*()7 '.DD72BB ,.B7'372 *.,,*(2B +,.'27)B +,.37'(B +,.3B*(* +,.B''2* ,.*D)B27 ,.72)**7 +,.*)2'7 ,.),(),) ,.3227)) D.*33,D3 ,.)D2'3B ,.3(72 D.(2*73) ,.)'''D7 ,.327(BD D.*(7B,7 ,.),*3)7 ,.3BBD,3 D.',2*3B ,.7**(D7 ,.2**3D7 '.)73)7B ,.3)73'7 ,.B7*)'7 '.2D7B() ,.)'3'B* ,.333,)) D.B'(33D ,.2)22B* ,.DB*)3 ,.)(BB*

'3

t '3 Jndia %oeff t '7 ?exico %oeff t ') %hina %oeff t

D.D''3* 3 ',.B7)7 '.)*BB' ' 'D.DB3, 3 *.7B,') D B.,*(DD 2 '.27D7' )

+D.7D'3( +,.BB7** +'.))*7D +,.7,,*2 +D.*733B +,.*'(32 +*.2,*2*

+'.,7*2' ,.',')* 3 '.')73) * '.,3,B7 2 *.D('77 ) +,.'B2*( +,.D7(B3

../21*3 1 2.-*1.* 3 2.32.,. 2./,*++ ..+1-*, . 2./*1+2 1 2.,32,2 1

'.,(),,* +,.D72(3 +'.(D(3* +,.*7,B +'.*2)B) ,.,*)327 ,.**,,7

'.B2(,)3 +,.,B*)* +,.73(B' ,.,3*D(3 ,.','(B2 +,.B)BD) +'.3D)()

+'.,2*,3 +*.'),(2 +,.3B)77 +,.72*'2 +,.)D,D( +*.3DD'* +*.*73DB

+'.,,),7 ,.,,**2' ,.,'272B +,.*(D)( +,.2BB77 ,.'*3D,B ,.((DD) ,.7B'*'7 ,.2B(B,* *.,(,')* ,.)2(,D' ,.7D7(DB B.)*7'2 ,.73,( ,.27)(3( *.D27D2B

'7

-A08$ D Panel Data $stimation !ith B re ressors Variable #@$ 8nK 8nH $@ -J? -A08$ B Panel Data $stimation !ith B re ressors allo!in specific autocorrelations "ariable. %oeff. Std.$rr. #@$ ,.'D)B*2 7.D,$+,( 8nK ,.,,)27B '.)B$+,( 8nH ,.,,)D'( *.7'$+,( $@ +,.,*3(( '.,7$+,( -J? +,.,,BD3 '.(*$+', country+ %oeff. ,.*)3,** +,.,7*BD ,.,*B'') +,.,D,(* ,.,,,)2D Std.$rr. D.(3$+,) '.*'$+,) *.,'$+,) ).,*$+,( '.D'$+,( t+ratio 7.**$O,3 +2.(7$O,3 '.*,$O,3 +D.)3$O,3 3B)(7B P+"alue , , , , ,

t+ratio '.(,$O,7 B.33$O,3 D.,7$O,3 +*.2'$O,7 +*.*7$O,7

P+"alue , , , , ,

-A08$ 2 Panel Data $stimation !ith 7 re ressors allo!in specific autocorrelations Variance %oeff. Std.$rr. #@$ ,.'3*(32 '.*)$+,7 +,.,,,)( *.B)$+,( 8nK ,.,,,()3 D.2'$+,) 8nH ,.,,),22 B.)*$+,) $@ +,.,D)3' *.'3$+,) D8nK ,.,,,))' *.B3$+,) D8nH +,.'),'D 3.()$+,) D$@ ,.,2',22 '.D)$+,) country+

t+ratio '.*7$O,3 +D2(223 *),B3 '37'*( +'.7($O,3 D2772.7 +*.2)$O,3 D.7,$O,3

P+"alue , , , , , , , ,

FIGURE 1. 15 10 5 %E&' 0 (5) (10) (15) (20) 15 17

Impact of Human Capital on Economic Growth

8 15 4 3 1 5 6 7 10 9 11 12 14 16 17

18

21

2!

25

27

13

"nG#$

'(

FIGURE 2. Impact of Human Capital on Economic Growth

) !
11 17 14 8 5 7 6 9 10 4 12 15 16 18

2
*&U#E+&(t

0 15.0000 17.0000 1 .0000 21.0000 2!.0000 25.0000 27.0000 2 .0000 (1 (2 (!


"nG#$
1

13

FIGURE !. %E&' )

Impact of Human Capital on Economic Growth

*, 18
15 14 11 16 17 13

APP$@DJ< ' 1DA-A4 -he main source of data for this study is the &orld 0ank6s &orld De"elopment Jndicator 1&DJ4. report for *,,D. >irst. !e pro"ide the definitions of the "ariables used and indicate the notation used for them in brackets in titles. &e transform many "ariables by usin lo arithms and insertin 8n as a prefix it its name. -he prefix D in the names of "ariables stands for the first difference. -he 8J?D$P soft!are does not allo! "ariable names to ha"e spaces. symbols such as minus and the number of characters must not exceed ). Also. the name n for ro!th rate of labor is not allo!ed in the soft!are. so !e made it $@ and replace the minus symbol for la ed "ariable by lo!er case m. GDP 1current :SV4/ Rdenoted by GDPS Definition/ GDP is the sum of ross "alue added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the "alue of the products. Jt is calculated !ithout makin deductions for depreciation of fabricated assets or for depletion and de radation of natural resources. Data are in current :.S. dollars. Dollar fi ures for GDP are con"erted from domestic currencies usin sin le year official exchan e rates. >or a fe! countries !here the official exchan e rate does not reflect the rate effecti"ely applied to actual forei n exchan e transactions. an alternati"e con"ersion factor is used. Source/ &orld 0ank national accounts data. GDP ro!th 1annual L4/ RDenoted by D8nGDPS Definition/ Annual percenta e ro!th rate of GDP at market prices based on constant local currency. A re ates are based on constant '((2 :.S. dollars. GDP is the sum of ross "alue added by all resident producers in the economy plus any product taxes and minus any subsidies

*'

not included in the "alue of the products. Jt is calculated !ithout makin

deductions for

depreciation of fabricated assets or for depletion and de radation of natural resources. Source/ &orld 0ank national accounts data. Adult Jlliteracy rate. 1L4 Rdenoted by HS/ Definition/ Adult illiteracy rate is the percenta e of people a es '2 and abo"e !ho cannot. !ith understandin . read and !rite a short. simple statement on their e"eryday life. Source/ :nited @ations $ducational. Scientific. and %ultural #r ani9ation. Gross capital formation 1L of GDP4/ Rdenoted by KS Definition/ Gross capital formation 1formerly ross domestic in"estment4 consists of outlays on additions to the fixed assets of the economy plus net chan es in the le"el of in"entories. >ixed assets include land impro"ements 1fences. ditches. drains. and so on4X plant. machinery. and eEuipment purchasesX and the construction of roads. rail!ays. and the like. includin schools. offices. hospitals. pri"ate residential d!ellin s. and commercial and industrial buildin s. Jn"entories are stocks of oods held by firms to meet temporary or unexpected fluctuations in production or sales. and F!ork in pro ress.G Accordin to the '((D S@A. net acEuisitions of "aluables are also considered capital formation. Source/ &orld 0ank national accounts data. Gro!th =ate of 8abor/ Rdenoted by $@S Gro!th rate of labor force is reported as F&DJ national data on labor forceG compiled by the &orld 0ank and denoted there as 1n4. Since !e use n to denote the number of countries. !e ha"e chan ed that notation.

**

Data Series :sed in estimations reported in this paper. Source/ &DJ database %#:@-=A Population -otal *,,' Al eria D,)D2,,, Ar entina D7B)),,, 0oli"ia )2'2**, 0ra9il '7*D)3,,, %entre Africa D77,)*, %had 7('3,', %hile '2B,*,,, %hina '.*7*$O,( %olombia BD,D2'7, %omoros 27')(, %on o. Dem. 2*D2B',, =ep. %on o. =ep. $ ypt Haiti Jndia Jndonesia ;amaica Kenya 8iberia ?alaysia ?ali ?exico @i eria Pakistan Peru Philippines South Africa Sri 8anka -hailand -urkey : anda :ru uay D',DD2, 32'73(B, )'D*,,, '.,D*$O,( *,)()'',, *2(,,,, D,7D273, D*'D77, *D),*D3, '',(BDB, ((B'(3(, '*()7B(73 'B'B2,',, *3DB7,,, 7)D'7,D, BD*B,,,, ')7D*,,, 3'')D(,, 33**(,,, **7)),,, DD3',,, 8iteracy =ate 37.) (3.(' )3 )7.D B) BB.*D (2.( )2.77 ('.)( 22.(( 3*.72 )'.)' 23 2,.)D 2).,' )7.DB )7.*) )D.DB 2B.) )7.)) *3.B ('.BD 32 BB.,B (,.* (2.'2 )2.3' ('.)3 (2.32 )2.2' 37.(7 (7.3B

*D

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