Human Capital and Economic Growth in OECD Countries Revisited: Initial Stock versus Changes in the Stock of Human Capital Effects

Abstract

Abstract This paper investigates the effect of human capital on economic growth in OECD countries by focusing on two different channels: (1) absorption of superior technologies, and (2) augmentation of factors of production. One recent empirical study found that in isolation each channel appears insignificant, which implies that estimates that emanate by restrictive specifications that account for only a subset of these channels are likely to suffer from an omitted variable bias. Using an augmented specification (with interaction terms between the initial level of real GDP per capita and the average years of schooling), we find that OECD countries that start with a higher stock of human capital grow faster, which implies that human capital influences economic growth through the first channel only. Our results differ from previous studies (that investigated both channels), which either confirmed the simultaneous (positive or neutral) effect from both channels, or found that only the second channel had an isolated positive effect. We use a broad array of measures as proxies for human capital (six measures for educational attainment, and two measures for health status). We also account for the quality of human capital.