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Essays on human capital, economic growth and development
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This dissertation is comprised of four essays about endogenous growth theory.
The first three introduce a new distinction between types of human capital, which proves to have important relationships with economic growth and economic development, defined as the average level of income in a country. This approach to human capital composition is based upon a distinction between technical and engineering talents or abilities and social and organizational talents or abilities. This can also be called the technical intensity of human capital.
In the first chapter, the well-known Grossman and Helpman (1991) model is changed to account for human capital composition, with the introduction of two types of human capital. We also mention the difference between the two types, based on entry costs in technological/engineering schools. It is also shown that the human capital composition implies a greater distortion between the optimal choice and the decentralized choice in the economy than in the original model. It is also shown that the technological intensity of human capital has a positive and quantitatively important relationship with economic growth, albeit a less robust non-linear relationship with economic development.
In the second chapter, the relationship between human capital technological intensity and the level of development is further studied. A new stylized fact is established: a robust and permanent inverted U relationship between human capital technological intensity and GDP per capita. The richest countries tend to invest proportionally less in high-tech human capital than middle-income countries. This evidence seems to contradict one former finding by Jones (1995), according to which richer countries invest more in R&D than poorer ones and reflects recent concerns of the European Commission (1999).
In the third chapter, a solution to this apparent contradiction is proposed in relation with the structural transformation of the economy and the increasing role of services in the more advanced countries. Both results are due to a depreciation effect on high-tech human capital that is linked with an adoption cost to new technologies. It is shown that the new type of high-tech accumulation, the existence of two accumulable human capital types and their allocation into sectors in the economy have important implications for the development process and the distortions in the economy.
This feature of human capital technology also explains a set of well-known stylized facts such as conditional convergence, increasing service prices with development and the increasing intensity of R&D activities simultaneously with an increasing role of sétkrices in the economy. The new stylized fact revealed in Chapter 2 is verified for a wide range of parameters. This model adds an important distortionary effect: the R&D decisions have a neglected (by agents) impact on human capital accumulation. The effect of this externality
is over-investment in R&D, which represents near 5% of non-optimal allocation of high-tech human capital. In fact, the new externality effect can overcome spillovers and is capable of allocating more high-tech human capital to R&D than would be optimal. If industry has greater markups than the service sector the externality distortion, together with the markup distortion, leads to over-allocation to the Services sector and under-allocation to the industrial sector in the developed countries. In terms of economic policy, Chapters 1 and 2 point out human capital institutions as potentially important in determining levels of development, growth rates and the extent of distortions.
In the last chapter, incentives and institutions linked with human capital and R&D (the mortality rate and property rights on ideas, respectively) are jointly studied in a model which aims to mimic the developed world
history over the past two and a half centuries. The model employed presents physical capital, human capital and R&D as growth engines. It is shown that the industrialized economy may have grown most of the time (nearly 200 years) under the contribution of the three mentioned engines. The model also highlights that for most of this time period (nearly 130 years) the economy was in transition and not in steady-state. The transitional dynamics impact on income and welfare is dependent on the degree of institutional protection
to human capital and R&D. The literature-based assumption that human capital accumulation is influenced by the mortality rate is crucial for the model to replicate the economic history of the last 250 years, in terms of
average growth rate of GDP per capita. Moreover, changes in the mortality rate or in the sensivity of human capital accumulation to the mortality rate have heavy impact on the length of stages of economic growth and on today's level of development of a country. The difference in levels between the USA and the UK today is easily accounted for by small differences in human capital based incentives.
The lack of a patenting system has a dramatic effect on development.
Nevertheless, when this effect is compared with the mortality rate, the effect of property rights becomes reduced to second order. In fact, an increase of only 75% in the effect of the mortality rate in human capital accumulation is necessary for the overall impact on welfare to be equal to the lack of property rights on patents. Moreover, a given increase in the quality of human capital protective institutions has a greater impact than an equal increase in R&D protective institutions. It is also shown that the representative agent
is willing to pay higher ad-valoren taxes in order to achieve improvements in institutions linked with the protection of human capital than those he is willing to pay to improve R&D protection.