Endogenous human capital formation, distance to frontier and growth

Basu, Sujata and Mehra, Meeta K (2011): Endogenous human capital formation, distance to frontier and growth.

Abstract

We examine human capital's contribution to economy-wide technological progress through two channels -- imitation and innovation -- innovation being more skilled-intensive than innovation. We develop a growth model considering an endogenous ability-driven skill acquisition decision of an individual. We show that skilled labor is growth enhancing in the ``imitation-innovation" regime and the ``innovation-only" regime whereas unskilled labor is growth enhancing in the ``imitation-only" regime. Steady state exists and, in the long run, an economy may or may not converge to the world technology frontier, depending on its initial position and the growth rate of the frontier economy. In the diversified regime, technological progress raises the return to ability and generates an increase in wage inequality between and within groups -- consistent with the pattern observed across countries.

• Item Type: MPRA Paper
• Language: English
• Keywords: Economic Growth; Endogenous Labor Composition; Imitation-Innovation; Convergence; Wage Inequality
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth; I - Health, Education, and Welfare > I2 - Education and Research Institutions > I21 - Analysis of Education; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights

References

Acemoglu, D., Aghion, P., and Zilibotti, F. (2006). ``Distance to Frontier, Selection, and Economic Growth." Journal of the European Economic Association, Vol. 4, No. 1, pp. 37-74.

Acemoglu, D. (2002), ``Directed Technical Change", Review of Economic Studies, 69, 781-810.

Acemoglu, D. (1998), ``Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality", Quarterly Journal of Economics, 113, 1055-1090.

Aghion, P.and Howitt, P. (2006) ``Joseph Schumpeter Lecture: Appropriate Growth Policy: A Unifying Framework" Journal of the European Economic Association, Vol. 4, No. 2/3.

Aghion, P. and Howitt P. (1992) ``A Model of Growth Through Creative Destruction." Econometrica, 60, pp. 323-351.

Aghion, P., Boustan, L., Hoxby, C, Vandenbussche, J. (2005). ``Exploiting statesmistakes to identify the causal impact of higher education on growth". Mimeo Harvard University.

Autor, David H., Lawrence F. Katz, and Alan B. Krueger, ‘‘Computing Inequality: Have Computers Changed the Labor Market?’’ Quarterly Journal of Economics, CXIII (1998), 1169–1213.

Barro, R. (1998). ``Human capital and growth in cross-country regressions". Mimeo Harvard University.

Benhabib, J., Spiegel, M. (1994). ``The role of human capital in economic development: Evidence from aggregate cross-country data". Journal of Monetary Economics, 34(2), 143-174.

Bils, M., Klenow, P. (2000). ``Does schooling cause growth?" American Economic Review, 90, 1160-1183.

Durlauf, S., Johnson, P. (1995). ``Multiple regimes and cross-country growth behavior". Journal of Applied Econometrics, 10, 365-384.

Galor, O., Moav, O. (2000), ``Ability-Biased Technological Transition, Wage Inequality, and Economic Growth, The Quarterly Journal of Economics.

Grossman, G, Helpman, E. (1991). ``Innovation and growth in the global economy". Cambridge, MA: MIT Press.

Himanshu (Feb. 10 2007), ``Recent Trends in Poverty and Inequality: Some Preliminary Results" EPW.

Katz, Lawrence F., and Kevin M., Murphy, ‘‘Changes in Relative Wages 1963–1987: Supply and Demand Factors,’’ Quarterly Journal of Economics, CVII (1992), 35–78.

Kalaitzidakis, P., Mamuneas, T. P., Savvides, A., Stengos, T. (2001). ``Measures of human capital and non-linearities in economic growth". Journal of Economic Growth, 6, 229-254.

Krueger, A., Lindahl, M. (2001). ``Education for growth: Why and for whom?" Journal of Economic Literature, 39, 1101-1136.

Nelson, R., Phelps, E. (1966). ``Investment in humans, technological diffusion and economic growth". American Economic Review, 56, (1/2), 69-75.

Romer, P. (1990). ``Endogenous technological change". Journal of Political Economy, 98, S71-S102.

Sarkar, S. Mehta B. S.(2010) ``Income Inequality in India: Pre- and Post-Reform Periods" EPW.

Vandenbussche, J. Aghion, P. Meghir, C. (Jun., 2006): ``Growth, Distance to Frontier and Composition of Human Capital" Journal of Economic Growth, Vol. 11, No. 2 pp. 97-127.