Human Capital, External Effects and Technical Change

London School of Economics Working Paper

24 Pages Posted: 14 Oct 2002

See all articles by Jorge Arbache

Jorge Arbache

University of Brasilia - Department of Economics

Sarquis J. B. Sarquis

LSE, Department of Economics

Date Written: August 2002

Abstract

This paper formulates a positive association between total factor productivity and external effects of human capital. It interprets that exogenous technical changes - as a result from the removal of barriers for trade and technology diffusion and other policy or institutional reforms - enhance the external effects of human capital. In a variant of Lucas' (1988) model with exogenous productivity growth, it is shown that higher external effects would mean higher wage and growth rates. An empirical illustration using inter-industry wage premium reveals some significant evidence in favour of the hypotheses of external effects of human capital and, above all, of enhanced external effects when there are positive technical changes. The paper contributes to the understanding of both macro and micro aspects of external effects, particularly in regard to the roles of human capital in augmenting the benefits of technological diffusion, namely in terms of productivity growth.

Keywords: human capital, external effects, technical change, TFP, endogenous growth, openness

JEL Classification: 015, J24, 030, D24, 040, F43

Suggested Citation

Arbache, Jorge and Sarquis, Sarquis J. B., Human Capital, External Effects and Technical Change (August 2002). London School of Economics Working Paper. Available at SSRN: https://ssrn.com/abstract=324100 or http://dx.doi.org/10.2139/ssrn.324100

Jorge Arbache (Contact Author)

University of Brasilia - Department of Economics ( email )

Campus Universitário Darcy Ribeiro
Asa Norte
Brasília, Distrito Federal 70910-900
Brazil
+ 55 61 8194 4529 (Phone)

Sarquis J. B. Sarquis

LSE, Department of Economics ( email )

Flat 6, 112 Clarendon Rd
London, W11 1SA
United Kingdom

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