Economic Development as Problem Solving

There has been a vast recent literature which has emphasized the role of human capital and knowledge on the economic growth process. This paper presents a model where the knowledge occurs through solving "problems." These problems which are partially idiosyncratic to the country. We think of a problem as a new technique or good. Each nation must master the problems associated with an activity in order to acheive productivity increases and growth. We will follow the tradition of learning by doing models where learning occurs after production on a good, or a particular type or grade of a good. Growth occurs by solving or learning about successively harder problems.Development

The United Arab Emirates: Some Lessons in Economic Development

Oil was discovered in the United Arab Emirates (UAE) just 50 years ago. During that time, UAE has been able to transform itself into a rapidly modernizing country, which is fast becoming a major economic hub and a key player on the international economic landscape. This paper discusses a number of aspects of the development strategy of the UAE that contributed to its phenomenal development: (i) the political system, which has resulted in a perception of stability and minimal political risk, encouraging investment; (ii) oil; (iii) development strategies that have resulted in a very dynamic business environment; (iv) open importation of foreign skills and management; (v) labour policies that have enabled the immigration of vast numbers of foreign lower-skilled workers. There are, of course, also concerns for the future, and indeed each of the five positive attributes listed above has a flip side which is a potential major challenge for the future.role models, United Arab Emirates, success

EU Policies and African Human Capital Development

Brain Circulation between the European Union (EU) and Sub-Saharan Africa is a crucial ingredient in Human Capital formation in the latter. A major constraint to African development is the very low base of skilled and highly educated workers and professionals. The production of skilled workers has been low, and only recently has seen a dramatic increase. Recent papers by many authors have indicated that a channel for human capital growth has been, paradoxically, the possibility of the brain drain which serves as both an incentive mechanism and which results in higher human capital when the drainers return. After a review of some of the literature, these insights are applied to the debates raging today on European Union migration policy: the Blue Card, Migration Con-tracts, anti-Brain Drain legislation, etc. This paper argues that a careful calibration of the EU policies may enable faster Human Capital growth in Africa, while, at the same time, being beneficial to the EU by supplying critically needed skills into the EU economy. By carefully planning the production of human capital and the consequent flow of skilled migrants into Europe, the EU can assist in the development of vitally needed numbers of trained or skilled workers in Africa.

Research and Productivity

We model research as a signal on an unknown parameter of a technology. We distinguish applied from basic research and show that firms in the same industry can optimally choose different research portfolios, and that basic research can seem to have a higher rate of return than applied research, even though it really doesn't -- essentially, firms on a 'fast track' upgrading policy opt for basic research but fast and slow-track upgrading policies can coexist in a long-run equilibrium. We also derive the lag structure for how R&D affects the firm's stock of knowledge. To a first approximation, the lags decay geometrically (as is typically assumed in practice) but the rate of decay is endogenous, and depends on how fast the firm is upgrading its technology.

"Learning By Doing and the Choice of Technology."

This paper explores a one-agent Bayesian model of learning by doing and technological choice. To produce output, the agent can choose among various technologies. The beneficial effects of learning by doing are bounded on each technology, and so long-run growth in output can take place only if the agent repeatedly switches to better technologies. As the agent repeatedly uses a technology, he learns about its unknown parameters, and this accumulated expertise is a form of human capital. But when the agent switches technologies, part of this human capital is lost. It is this loss of human capital that may prevent the agent from moving up the quality ladder of technologies as quickly as he can, since the loss is greater the bigger is the technological leap. We analyze the global dynamics. We find that a human-capital- rich agent may find it optimal to avoid any switching of technologies, and therefore to experience no long-run growth. On the other hand, a human-capital-poor agent, who because of his lack of skill is not so attached to any particular technology, can find it optimal to switch technologies repeatedly, and therefore enjoy long-run growth in output. Thus the model can give rise to overtaking.

Stepping Stone Mobility

People at the top of an occupational ladder earn more partly because they have spent time on lower rungs, where they have learned something. But what precisely do they learn? There are two contrasting views: First, the Bandit model assumes that people are different, that experience reveals their characteristics, and that consequently an occupational switch can result. Second, in our Stepping Stone model, experience raises a worker's productivity on a given task and the acquired skill can in part be transferred to other occupations, and this prompts movement. Safe activities (where mistakes destroy less output) are a natural training ground.

The Transfer of Human Capital

Most of our productive knowledge was handed down to us by previous generations. The transfer of knowledge from the old to the young is therefore a cornerstone of productivity growth. We study this process in a model in which the old sell knowledge to the young - - old workers train the young, and charge them for this service. We take an information-theoretic approach in which training occurs if a young agent watches an old worker perform a task. This assumption has plenty of empirical support -- in their first three months on the job, young workers spend about five times as long watching others work as they do in formal training programs. Equilibrium is not constrained Pareto optimal. The old have private information, and this gives rise to an adverse selection problem: some old agents manage to sell skills that the young would not buy (if only they knew exactly what they were buying). We derive the implications for the lifetime of technological lines, and we show that the model generates a negative relation between a firm's productivity and its probability of failure.

Social Safety Nets: The Role of Education, Remittances and Migration

We study the role of education as a social protection mechanism. We compare the effectiveness of direct cash handouts in comparison to education over the long-term in reducing the vulnerability to poverty. We also look at the role of three inter-related mechanisms related to protection against shocks: Education, Remittances and Migration. We compute internal rates of return to investments education when the objective is social protection or poverty, and not just the value of incomes. We use Ghanaian Livings Survey data and show that, for benchmark interest rates, the returns to primary and secondary education are positive for social protection. This suggests that for the long-run, education may be a more important means of social protection than cash transfers.Education; Migration; Remittances; Safety-Nets; Africa; O; O55; F35; F43

The Returns to the Brain Drain and Brain Circulation in Sub-Saharan Africa: Some Computations Using Data from Ghana

We look at the decision of the government or "central planner" in the allocation of scarce governmental resources for tertiary education, as well as that for the individual. We provide estimates of the net present values, or cost and benefits. These include costs of tertiary education; the benefits of improved skills of those who remain in the country; and also takes into account the flows of the skilled out of the country (the brain drain) as well as the remittances they bring into the country. Our results are positive for the net benefits relative to costs. Our results suggest that (i) there may be room for creative thinking about the possibility that the brain drain could provide mechanisms for dramatic increases in education levels within African nations; and (ii) by at least one metric, spending by African nations on higher education in this period yielded positive returns on the investment. Our results on the individual decision problem resolve a paradox in the returns to education literature which finds low returns to tertiary education.

An Experimental Study of Belief Learning Using Real Beliefs

Belief Learning; Game Theory; Experimental Economics