A Model of Multi-Dimensional Human Capital Investment: Specific vs. general investments under uncertainty

Specialization and the division of labor are the sources of high productivity in modern society. When worker skills are multi-dimensional, workers may face a choice between general versus specific human capital investment. Given that individual agents face uncertainty in the relative output price, what are the optimal strategies for heterogeneous individual agents in human capital investment? In the absence of insurance markets, general investment gives an option value for changes in the environment. We analyze a model in which workers are born heterogeneous and are endowed with two-dimensional skills in different sectors, to determine if incentives exist for workers to invest in skills in which they had originally excelled or struggled. We find that some workers choose to invest in their weaker skill, via specific human capital investment, provided that the scale of the risk is big and that the parameter of relative risk aversion is greater than one. We find that there exist agents whose optimal human capital investment decisions reverse their ex ante comparative advantages ex post.

Economic Growth and Poverty Reduction in Sub-Saharan Africa

This study confirms a strong and robust relationship between economic growth and poverty reduction in sub-Saharan Africa. Employing a panel of 46 countries covering the period 1972-97, the analysis finds that a 10 percent increase in per capita GDP leads to a 1 percent increase in life expectancy, a 3-4 percent decline in infant mortality rates, and a 3½-4 percent increase in the rate of gross primary school enrollment. The results are robust for high- and low-income, as well as fast- and slow-growth, countries. The study also finds that quality of growth, civil conflict, HIV/AIDs, civil and institutional freedom, and island economies are important control variables that help explain the variability of poverty across Africa. A country''s latitude is not found to be a significant factor explaining life expectancy or infant mortality rates, though it is a significant factor explaining gross primary school enrollments.Poverty;primary school, primary school enrollment, school enrollment, life expectancy, mortality rates, infant mortality, mortality rate, infant mortality rates, infant mortality rate, gross primary school enrollment, enrollment rates, primary education, birth, primary school enrollments, improvements in life expectancy, census, life expectancy at birth, enrollment rate, school enrollments, educational attainment, education services, health education, household surveys, primary education enrollment, live birth, higher enrollment, number of deaths, annual inflation rate