Human Capital, Technology Adoption and Development
Stockholm School of Economics - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR); Boğaziçi University - Center for Economics and Econometrics
January 26, 2009
This paper presents a model of development in which skilled labor is an input in technology adoption. The model combines Nelson and Phelps (1966) type technology dynamics with a growth model in which intermediate goods are used to produce a final good. The intermediate good producers hire skilled labor to increase their productivity by adopting techniques from an exogenously evolving stock of world knowledge. I solve for the stationary equilibrium and derive analytic expressions for steady state income level and wage premium. In a quantitative exercise, I calibrate the model and compare its predictions with data. The model successfully accounts for cross-country income differences and within-country wage premia on skilled labor. These results strengthen the idea that different types of human capital perform separate tasks and should not be aggregated into a single stock of human capital in development accounting exercises. The availability of skilled labor is potentially much more important for development than such aggregative exercises have so far suggested.
Number of Pages in PDF File: 37
Keywords: Total Factor Productivity, Human Capital and Development
JEL Classification: O33, O41
Date posted: December 22, 2008 ; Last revised: July 26, 2014