Schooling and distortions in a vintage capital model

Abstract

This paper integrates the analysis of choices on education and on technology adoption to study international economic disparities. Two candidate explanations are considered: di¤erences in distortions that a¤ect the cost of technology adoption and di¤erences in the e¤ectiveness of schools. The implications of these two factors for di¤erences in output per capita, educational attainment, and the age of technologies across-countries are assessed in a vintage capital model with technology-speci…c learning-by-doing. Predictions are obtained for a parameterized economy that matches US aggregate observations and evidence on learning. Di¤erences in investment distortions produce plausible correlations only if the major role of education is to improve the ability to learn technologies. On the other hand, di¤erences in school e¤ectiveness produce plausible results only if the role of education is to provide a productive ability that is independent of learning.