Specifying Human Capital: A Review, Some Extensions, and Development Effects
Kiel Working Paper No. 1007
56 Pages Posted: 3 Nov 2000
Date Written: October 2000
A review of the measures of the stock of human capital used in empirical growth research reveals that human capital is mostly poorly proxied. The simple use of the most common proxy, average years of schooling of the working-age population, misspecifies the relationship between education and the stock of human capital. Based on human capital theory, the specification of human capital should be extended to allow for decreasing returns to education and for differences in the quality of a year of education. Cross-country differences in quality-adjusted human capital can account for about half the world-wide dispersion of levels of economic development and for virtually all the development differences across OECD countries.
Keywords: human capital measurement, years of schooling, Mincer specification, educational quality, development accounting
JEL Classification: O4, I2
Suggested Citation: Suggested Citation