Human Capital and Growth: Specification Matters

Abstract

This paper suggests that the weak empirical effect of human capital on growth in existing cross-country studies is partly the result of an inappropriate specification that does not account for the different channels through which human capital aspects growth. A systematic replication of earlier results from the literature shows that both, initial levels and changes in human capital, have positive growth effects, while in isolation, each channel often appears insignificant. Studies that do not account for both channels might underestimate the effect of human capital due to convergence in human capital, in particular when measuring human capital in log average years of schooling. This study therefore complements alternative explanations for the weak growth effects of human capital based on outlier observations and measurement issues.Human Capital, Growth Regressions, Specification.