Endogenous Growth When Unskilled Labour is Abundant

Abstract

This paper examines how relative factor endowments and population growth rates affect growth rates in less developed countries. To answer these questions an extension of the Uzawa-Lucas endogenous growth model is used. The paper proves the existence and uniqueness and of the modified model and illustrates the local stability properties. Significantly the results reverse the conclusions of the only previous attempt to address these issues in the UzawaLucas framework, by Mulligan and Sala-i-Martin (1993), and Barro and Sala-i-Martin (1995). They argue that developing economies will follow a low growth transition path due to a scarcity of human capital. It is shown to the contrary that a standard convergence result applies for economies that have a scarcity of human and physical capital relative to labour. It is also shown that higher unanticipated population growth is consistent with slow transitional growth rates and increases the human capital resources devoted to human capital investments.

JEL Classification: O00, O41, O14, O15, J24