Showing papers on "Human capital published in 2012"

Professional Capital: Transforming Teaching in Every School

Abstract: 1. A Capital Idea 2. Competing Views of Teaching 3. Stereotypes of Teaching 4. Investing in Capability and Commitment 5. Professional Capital 6. Professional Culture and Communities 7. Enacting Change

Globalization, Brain Drain, and Development

Abstract: This paper reviews four decades of economics research on the brain drain, with a focus on recent contributions and on development issues. We first assess the magnitude, intensity, and determinants of the brain drain, showing that brain drain (or high-skill) migration is becoming a dominant pattern of international migration and a major aspect of globalization. We then use a stylized growth model to analyze the various channels through which a brain drain affects the sending countries and review the evidence on these channels. The recent empirical literature shows that high-skill emigration need not deplete a country’s human capital stock and can generate positive network externalities. Three case studies are also considered: the African medical brain drain, the exodus of European scientists to the United States, and the role of the Indian diaspora in the development of India’s information technology sector. We conclude with a discussion of the implications of the analysis for education, immigration, and international taxation policies in a global context.

The Impact of Pollution on Worker Productivity

Abstract: As one of the primary factors of production, labor is an essential element in every nation's economy. Investing in human capital is widely viewed as a key to sustaining increases in labor productivity and economic growth. While health is increasingly seen as an important part of human capital, environmental protection, which typically promotes health, has not been viewed through this lens. Indeed, such interventions are typically cast as a tax on producers and consumers, and thus a drag on the labor market and the economy in general. Given the large body of evidence that causally links pollution with poor health outcomes (e.g., Bell et al. 2004; Chay and Greenstone 2003; Currie and Neidell 2005; Dockery et al. 1993; Pope et al. 2002), it seems plausible that efforts to reduce pollution could in fact also be viewed as an investment in human capital, and thus a tool for promoting, rather than retarding, economic growth. The key to this assertion lies in the impacts of pollution on labor market outcomes. While a handful of studies have documented impacts of pollution on labor supply (Carson, Koundouri, and Nauges 2011; Graff Zivin and Neidell forthcoming; Hanna and Oliva 2011; Hausman, Ostro, and Wise 1984; Ostro 1983),1 their focus on the extensive margin, where behavioral responses are nonmarginal, only captures high-visibility labor market impacts. Pollution is also likely to have productivity impacts on the intensive margin, even in cases where labor supply remains unaffected. Since worker productivity is more difficult to monitor than labor supply, these more subtle impacts may be pervasive throughout the workplace, so that even small individual effects may translate into large welfare losses when aggregated across the economy. There is, however, no systematic evidence to date on the direct impact of pollution on worker productivity.2 This paper is the first to rigorously assess this environmental productivity effect. Estimation of this relationship is complicated for two reasons. One, although datasets frequently measure output per worker, these measures do not isolate worker productivity from other inputs (i.e., capital and technology), so that obtaining clean measures of worker productivity is a perennial challenge. Two, exposure to pollution levels is typically endogenous. Since pollution is capitalized into housing prices (Chay and Greenstone 2005), individuals may sort into areas with better air quality depending, in part, on their income, which is a function of their productivity (Banzhaf and Walsh 2008). Furthermore, even if ambient pollution is exogenous, individuals may respond to ambient levels by reducing time spent outside, so that their exposure to pollution is endogenous (Neidell 2009). In this paper, we use a unique panel dataset on the productivity of agricultural workers to overcome these challenges in analyzing the impact of ozone pollution on productivity. Our data on daily worker productivity is derived from an electronic payroll system used by a large farm in the Central Valley of California that pays its employees through piece rate contracts. A growing body of evidence suggests that piece rates reduce shirking and increase productivity over hourly wages and relative incentive schemes, particularly in agricultural settings (Bandiera, Barankay, and Rasul 2005, 2010; Lazear 2000; Paarsch and Shearar 1999, 2000; Shi 2010). Given the incentives under these contracts, our measures of productivity can be viewed as a reasonable proxy for productive capacity under typical work conditions. We conduct our analysis at a daily level to exploit the plausibly exogenous daily fluctuations in ambient ozone concentrations. Although aggregate variation in environmental conditions is largely driven by economic activity, daily variation in ozone is likely to be exogenous. Ozone is not directly emitted but forms from complex interactions between nitrogen oxides (NOx) and volatile organic chemicals (VOCs), both of which are directly emitted, in the presence of heat and sunlight. Thus, ozone levels vary in part because of variations in temperature, but also because of the highly nonlinear relationship with NOx and VOCs. For example, the ratio of NOx to VOCs is almost as important as the level of each in affecting ozone levels (Auffhammer and Kellogg 2011), so that small decreases in NOx can even lead to increases in ozone concentrations, which has become the leading explanation behind the “ozone weekend effect” (Blanchard and Tanenbaum 2003). Moreover, regional transport of NOx from distant urban locations, such as Los Angeles and San Francisco, has a tremendous impact on ozone levels in the Central Valley (Sillman 1999). Given the limited local sources of ozone precursors, this suggests that the ozone formation process coupled with emissions from distant urban activities are the driving forces behind the daily variation in environmental conditions observed near this farm. Furthermore, the labor supply of agricultural workers is highly inelastic in the short run. Workers arrive at the field in crews and return as crews, thus spending the majority of their day outside regardless of environmental conditions. Moreover, since we have measures of both the decision to work and the number of hours worked, we can test whether workers respond to ozone, and in fact we are able to rule out even small changes in avoidance behavior. Thus, focusing on agricultural workers greatly limits the scope for avoidance behavior, further ensuring that exposure to pollution is exogenous in this setting, and that we are detecting productivity impacts on the intensive margin. Although these workers are paid through piece-rate contracts, worker compensation is subject to minimum wage rules, which can alter the incentive for workers to supply costly effort. Since the minimum wage decouples daily job performance from compensation, workers may have an incentive to shirk. If pollution leads to more workers earning the minimum wage, and this in turn induces shirking, linear regression estimates will be upward biased. On the other hand, the threat of termination may provide a sufficient incentive to provide effort, particularly in our setting where output is easily verified and labor contracts are extremely short-lived, in which case linear regression models should be unbiased. After merging this worker data with environmental conditions based on readings from air quality and meteorology stations in the California air monitoring network, we first estimate linear models that relate mean ozone concentrations during the typical workday to productivity. We find that ozone levels well below federal air quality standards have a significant impact on productivity: a 10 parts per billion (ppb) decrease in ozone concentrations increases worker productivity by 5.5 percent. To account for potential concerns about shirking, we artificially induce “bottom- coding” on productivity measures for observations where the minimum wage binds, and estimate censored regression models. Under this specification, the actual measures of productivity when the minimum wage binds no longer influence estimates of the impact of ozone on productivity. Thus, if the marginal effects of productivity on this latent variable differ from the marginal effects from our baseline linear model, this would indicate shirking is occurring. Our results, however, remain unchanged, suggesting that the threat of termination provides sufficient incentives for workers to supply effort even when compensation is not directly tied to output. These impacts are particularly noteworthy as the US Environmental Protection Agency is currently contemplating a reduction in the federal ground-level ozone standard of approximately 10 ppb (Environmental Protection Agency 2010). The environmental productivity effect estimated in this paper offers a novel measure of morbidity impacts that are both more subtle and more pervasive than the standard health impact measures based on hospitalizations and physician visits. Moreover, they have the advantage of already being monetized for use in the regulatory cost-benefit calculations required by Executive Order 12866 (The White House, 1994). In developing countries, where environmental regulations are typically less stringent and agriculture plays a more prominent role in the economy, this environmental productivity effect may have particularly detrimental impacts on national prosperity. The paper is organized as follows. Section I briefly summarizes the relationship between ozone and health, and highlights potentially important confounders. Section II describes the piece-rate and environmental data. Section III provides a conceptual framework that largely serves to guide our econometric model, which is described in Section IV. Section V describes the results, with a conclusion provided in Section VI.

Rethinking Sustained Competitive Advantage from Human Capital

Abstract: The strategy literature often emphasizes firm-specific human capital as a source of competitive advantage based on the assumption that it constrains employee mobility. We first identify three boundary conditions that limit the applicability of this logic. We then offer a more comprehensive framework of human capital–based advantage that explores both demand- and supply-side mobility constraints. The critical insight is that these mobility constraints have more explanatory power than the firm specificity of human capital.

Sustainability and the measurement of wealth

Abstract: We develop and apply a consistent and comprehensive theoretical frame- work for assessing whether economic growth is compatible with sustaining wellbeing over time. Our approach differs from earlier approaches by concentrating on wealth rather than income. Sustainability is demonstrated by showing that a properly defined comprehensive measure of wealth is maintained through time. Our wealth measure is unusually comprehensive, capturing not only reproducible and human capital but also natural capital, health improvements and technological change. We apply the framework to five countries: the United States, China, Brazil, India and Venezuela. We show that the often-neglected contributors to wealth - technological change, natural capital and health capital - fundamentally affect the conclusions one draws about whether given nations are achieving sustainability. Indeed, even countries that display sustainability differ considerably in the kinds of capital that contribute to it.

Clarifying the Effect of Intellectual Capital on Performance: The Mediating Role of Dynamic Capability

Abstract: Recent studies suggest a potential relationship between intellectual capital and dynamic capability in achieving performance. This is unsettling for managers because these studies contain little effort to develop a framework for understanding the relationship. To examine this unnerving potential, we develop and test a theoretical model that explains how dynamic capability mediates the impact of intellectual capital on performance. In this study, the scope of intellectual capital includes human capital, relational capital and structural capital. This study examines the pooled data of 242 high-technology firms from 2001 to 2008. Results from Bayesian regression analysis suggest that the effect of structural capital on performance is completely mediated by dynamic capability. Furthermore, the findings show that dynamic capability does not completely mediate the respective effects of human capital and relational capital on performance, but does so only partially. These results provide convincing support for the importance of dynamic capability through accumulating R&D and marketing capability over time, thereby enhancing firm performance. The empirical findings and the ensuing discussion will be of interest to managers and practitioners.

World development report 2013 : jobs

Abstract: The 2013 World Development Report on jobs helps to explain and analyze the connection between jobs and important dimensions of economic and social development. It provides analytical tools to identify the obstacles to sustained job creation and examine differences in the nature of jobs. Jobs are the cornerstone of economic and social development. This report takes the centrality of jobs in the development process as its starting point and challenges and reframes how we think about work. Adopting a cross-sectoral and multidisciplinary approach, the report looks at why some jobs do more for development than others. The report finds that poverty falls as people work their way out of hardship and as jobs empower women to invest more in their children. Efficiency increases as workers get better at what they do, as more productive jobs appear, and as less productive ones disappear. Societies flourish as jobs foster diversity and provide alternatives to conflict. The report advances a three-stage approach to help governments meet these objectives. First, policy fundamentals, including macroeconomic stability, an enabling business environment, investments in human capital, and the rule of law, are essential for both growth and job creation. Second, well-designed labor policies can help ensure that growth translates into employment opportunities, but they need to be complemented by a broader approach to job creation that looks beyond the labor market. Third, governments should strategically identify which jobs would do the most for development given their specific country context, and remove or offset the obstacles that prevent the private sector from creating more of those jobs.

Foreign Direct Investment, Human Capital and Environmental Pollution in China

Abstract: By using provincial socioeconomic and environmental data, this paper examines the relationship between human capital, FDI and pollution emissions in China. The result shows the impact of FDI on pollution emission is highly dependent on the level of human capital. FDI is negatively associated with pollution emissions in provinces with the higher levels of human capital, whereas FDI is positively related to pollution emissions in provinces with the lower levels of human capital. This suggests that pollution haven hypothesis (PHH) holds only in those provinces with low human capital. This study also finds that the sign of FDI’s effect on each pollutant’ emission requires the different threshold level of human capital, which may help to reconcile the current conflicting PHH empirical evidences partially.

The Rise of the Service Economy

Abstract: This paper analyzes the role of specialized high-skilled labor in the growth of the service sector as a share of the total economy. Empirically, we emphasize that the growth has been driven by the consumption of services. Rather than being driven by low-skill jobs, the importance of skill-intensive services has risen, and this has coincided with a period of rising relative wages and quantities of high-skilled labor. We develop a theory where demand shifts toward ever more skill-intensive output as income rises, and because skills are highly specialized this lowers the importance of home production relative to market services. The theory is also consistent with a rising level of skill and skill premium, a rising relative price of services that is linked to this skill premium, and rich product cycles between home and market, all of which are observed in the data.

Growth and entrepreneurship

Abstract: In this paper we suggest that the spillover of knowledge may not occur automatically as typically assumed in models of endogenous growth. Rather, a mechanism is required to serve as a conduit for the spillover and commercialization of knowledge from the source creating it, to the firms actually commercializing the new ideas. In this paper, entrepreneurship is identified as one such mechanism facilitating the spillover of knowledge. Using a panel of entrepreneurship data from 18 countries, we provide empirical evidence that, in addition to measures of Research & Development and human capital, entrepreneurial activity also serves to promote economic growth.

Strengthening State Capabilities: The Role of Financial Incentives in the Call to Public Service

Abstract: We study a recent recruitment drive for public sector positions in Mexico Different salaries were announced randomly across recruitment sites, and job offers were subsequently randomized Screening relied on exams designed to measure applicants' intellectual ability, personality, and motivation This allows the first experimental estimates of (i) the role of financial incentives in attracting a larger and more qualified pool of applicants, (ii) the elasticity of the labor supply facing the employer, and (iii) the role of job attributes (distance, attractiveness of the municipal environment) in helping fill vacancies, as well as the role of wages in helping fill positions in less attractive municipalities A theoretical model guides each stage of the empirical inquiry We find that higher wages attract more able applicants as measured by their IQ, personality, and proclivity towards public sector work – ie, we find no evidence of adverse selection effects on motivation; higher wage offers also increased acceptance rates, implying a labor supply elasticity of around 2 and some degree of monopsony power Distance and worse municipal characteristics strongly decrease acceptance rates but higher wages help bridge the recruitment gap in worse municipalities

Micro and Macro Labor Supply Elasticities: A Reassessment of Conventional Wisdom

Abstract: The response of aggregate labor supply to various changes in the economic environ- ment is central to many economic issues, especially the optimal design of tax policies. Conventional wisdom based on studies in the 1980s and 1990s has long held that the analysis of micro data leads one to conclude that aggregate labor supply elasticities are quite small. In this paper we argue that this conventional wisdom does not hold up to empirically reasonable and relevant extensions of simple life cycle models that served as the basis for these conclusions. In particular, we show that several pieces of conventional wisdom fail in the presence of human capital accumulation or labor supply decisions that allow for adjustment along both the extensive and intensive margin. We conclude that previous estimates of small labor supply elasticities based on micro data are fully consistent with large aggregate labor supply elasticities. ( JEL D91, E24, J22)

What Does Human Capital Do? A Review of Goldin and Katz’s The Race between Education and Technology

Abstract: Goldin and Katz’s The Race between Education and Technology is a monumental achievement that supplies a unified framework for interpreting how the demand and supply of human capital have shaped the distribution of earnings in the U.S. labor market over the 20th century. This essay reviews the theoretical and conceptual underpinnings of this work and documents the success of Goldin and Katz’s framework in accounting for numerous broad labor market trends. The essay also considers areas where the framework falls short in explaining several key labor market puzzles of recent decades and argues that these shortcomings can potentially be overcome by relaxing the implicit equivalence drawn between workers’ skills and their job tasks in the conceptual framework on which Goldin and Katz build. The essay argues that allowing for a richer set of interactions between skills and technologies in accomplishing job tasks both augments and refines the predictions of Goldin and Katz’s approach and suggests an even more important role for human capital in economic growth than indicated by their analysis.

Heterogeneity in Human Capital Investments: High School Curriculum, College Major, and Careers

Abstract: Motivated by the large differences in labor market outcomes across college majors, we survey the literature on the demand for and return to high school and postsecondary education by field of study. We combine elements from several papers to provide a dynamic model of education and occupation choice that stresses the roles of the specificity of human capital and uncertainty about preferences, ability, education outcomes, and labor market returns. The model implies an important distinction between the ex ante and ex post returns to education decisions. We also discuss some of the econometric difficulties in estimating the causal effects of field of study on wages in the context of a sequential choice model with learning. Finally, we review the empirical literature on the choice of curriculum and the effects of high school courses and college major on labor market outcomes.

The End of Cheap Chinese Labor

Abstract: In recent decades, cheap labor has played a central role in the Chinese model, which has relied on expanded participation in world trade as a main driver of growth. At the beginning of Chi...

Wages and Human Capital in the U.S. Financial Industry: 1909-2006

Abstract: We study the allocation and compensation of human capital in the U.S. finance industry over the past century. Across time, space, and subsectors, we find that financial deregulation is associated with skill intensity, job complexity, and high wages for finance employees. All three measures are high before 1935 and after 1980, but not in the interim period. Workers in the finance industry earn the same education-adjusted wages as other workers until 1990 and significantly more afterward. By 2006 the premium is 40% on average, and 200% for top earners and CEOs. Earnings risk and firm size effects account for some of the premium, but the majority does not appear to be sustainable.

Exploring the Entrepreneurial Behavior of Family Firms: Does the Stewardship Perspective Explain Differences?:

Abstract: Drawing from stewardship theory we investigate corporate entrepreneurship in family firms. We argue that stewardship culture determinants - comprehensive strategic decision-making, participative governance, long-term orientation and human capital -differentiate the most entrepreneurial family firms. Based on a study of 179 family firms, we show that comprehensive strategic decision-making and long-term orientation contribute to corporate entrepreneurship. Additionally, family-to-firm unity enhances the positive effects participative governance and long-term orientation have on corporate entrepreneurship. While we found that family-to-firm unity can compensate for low human capital, unexpectedly, we also found that family-to-firm unity can dampen the positive relationship between human capital and corporate entrepreneurship

On the Interaction between the Quantity and Quality of Children

Abstract: The trade-off between quantity and quality is a much-discussed issue in economics. In recent decades, economists have increasingly turned their attention to behavior within families because of its direct implications for such diverse issues such as population growth, intergenerational transfers of wealth, human capital accumulation, and macroeconomic policy. In a pioneering paper written by Gary S. Becker (1960), an economic framework is built by analyzing the factors that determine fertility, in which children are viewed as a durable goods that yield income to parents. Becker maintains that the quality of children is directly related to the amount spent on them, and the number of children desired is directly related to income. Furthermore, many empirical studies performed in the past have demonstrated that quantity and quality of children within a given family often have a negative correlation. Based on this, the Becker and Lewis (1973) paper (that we will present) further explores the interaction between quantity and quality of children. Becker and Lewis explain why the quantity and quality of children are “more closely related than any two commodities chosen at random”(279). An increase in the quantity of children raises the shadow price (marginal cost) of the quality of children (and vice versa) and it demonstrates that the observed income elasticity of demand with respect to quality of children exceeds income elasticity with respect to quantity, while at the same time the observed price elasticity with respect to quantity is greater than price elasticity with respect to quality.

The internationalization of small and medium-sized enterprises: the effect of family management, human capital and foreign ownership

Abstract: Research on factors affecting the internationalization of SMEs is attracting growing interest. However, only a limited number of empirical analyses have explored the question of if and to what extent the family character of the firm has an effect on internationalization decisions. Relying on data from a sample of 1,324 Italian manufacturing SMEs, this paper shows that involvement of the owning family in management negatively influences export propensity but, once the choice to go international has been made, both the degree of internationalization and geographical scope in family-managed firms are not significantly different from nonfamily-managed firms. Empirical results also show that the level of human capital and the presence of foreign shareholders in the SMEs positively influence internationalization. Innovation propensity, size, and age of the firm as well as industry characteristics are included in the analysis as control variables.

Scientists’ transition to academic entrepreneurship: Economic and psychological determinants

Abstract: This study investigated academic scientists’ transition to entrepreneurship by studying their academic entrepreneurial intentions (to found a business in order to market their research knowledge) and actual founding behavior. We developed and tested a conceptual model integrating both economic and psychological perspectives. Applying the theory of planned behavior, we examined the economic factors (scientists’ human capital, social capital, expected entrepreneurial benefits) as distal predictors (background factors) of academic entrepreneurial intentions. The psychological factors (entrepreneurial attitudes, norms, control perceptions) were examined as proximal intention predictors. Findings were derived from a path analysis utilizing archival and survey data on German scientists (N = 496). We found that attitudes and perceived control predicted entrepreneurial intentions. Social norms in turn had no effect. As regards the economic factors, human and social capital exhibited indirect effects on intentions via entrepreneurial attitudes and control perceptions, while additional direct effects of both capitals showed up significantly as well. Expected benefits from engaging in academic entrepreneurship (i.e., expected financial and reputational gain) only showed indirect effects on intentions via attitudes and perceived control. In addition, longitudinal results indicated that entrepreneurial intentions indeed forecasted entrepreneurial behavior, while certain barriers have a diminishing influence on this relationship. Our results are discussed with an emphasis on the long-neglected importance of the interplay of economic and psychological determinants for scientists’ transition to academic entrepreneurship.

Credit Constraints in Education

Abstract: We review studies of the impact of credit constraints on the accumulation of human capital. Evidence suggests that credit constraints have recently become important for schooling and other aspects of households' behavior. We highlight the importance of early childhood investments, as their response largely determines the impact of credit constraints on the overall lifetime acquisition of human capital. We also review the intergenerational literature and examine the macroeconomic impacts of credit constraints on social mobility and the income distribution. A common limitation across all areas of the human capital literature is the imposition of ad hoc constraints on credit. We propose a more careful treatment of the structure of government student loan programs and the incentive problems underlying private credit. We show that endogenizing constraints on credit for human capital helps explain observed borrowing, schooling, and default patterns and offers new insights about the design of government policy.

Founders' human capital and the performance of UK new technology based firms

Abstract: This paper investigates the role of entrepreneurs’ general and specific human capital on the performance of UK new technology based firms using a resource based approach to the entrepreneurship theory. The effect of entrepreneurial human capital on the performance of NTBFs is investigated using data derived from a survey of 412 firms operating in both high-tech manufacturing and the services sectors. According to the resource based theory it is found that specific human capital is more important for the performance of NTBFs in relation to general. More specifically individual entrepreneurs or entrepreneurial teams with high levels of formal business education, commercial, managerial or same sector experience are found to have created better performing NTBFs. Finally it is found that the performance of a NTBF can improve through the combination of heterogeneous but complementary skills, including, for example, technical education and commercial experience or managerial technical and managerial commercial experience.

Family Background, Self-Confidence and Economic Outcomes

Abstract: In this paper we analyze the role played by self-confidence, modeled as beliefs about one’s ability, in shaping task choices. We propose a model in which fully rational agents exploit all the available information to update their beliefs using Bayes’ rule, eventually learning their true type. We show that when the learning process does not converge quickly to the true ability level, small differences in initial confidence can result in diverging patterns of human capital accumulation between otherwise identical individuals. If differences in self-confidence are correlated with socio-economic background (as a large body of empirical literature suggests), self-confidence can be a channel through which education and earning inequalities perpetuate across generations. Our theory suggests that cognitive tests should take place as early as possible, in order to avoid that systematic differences in self-confidence among equally talented people lead to the emergence of gaps in the accumulation of human capital.

Determinants of Export Diversification Around the World: 1962-2000

Abstract: Using a large dataset of countries during the last forty years, this paper analyzes the main determinants of export diversification. We explore the role of several factors and we use three different indicators of export diversification. We find robust evidence across specifications and indicators that trade openness induces higher specialization and does not favor export diversification. In contrast, financial development helps countries to diversify their exports. Looking at the effects of exchange rates, our results suggest a negative effect of real exchange rate overvaluation, but not significant effects of exchange rate volatility. We also find evidence that capital accumulation contributes positively to diversity exports and that increasing remoteness tend to reduce export diversification. We explore also the role of terms of trade shocks. Some of our results suggest that there is an interesting interaction between this variable and human capital. We find that improvements in terms of trade tend to concentrate exports, but this effect is lower for those countries with higher levels of human capital. This evidence suggests that countries with higher education can take advantage of positive terms of trade shocks to increase export diversification.

What Does Human Capital Do? A Review of Goldin and Katz's The Race between Education and Technology

Abstract: Goldin and Katz's The Race between Education and Technology is a monumental achievement that supplies a unified framework for interpreting how the demand and supply of human capital have shaped the distribution of earnings in the U.S. labor market over the twentieth century. This essay reviews the theoretical and conceptual underpinnings of this work and documents the success of Goldin and Katz's frame- work in accounting for numerous broad labor market trends. The essay also considers areas where the framework falls short in explaining several key labor market puzzles of recent decades and argues that these shortcomings can potentially be overcome by relaxing the implicit equivalence drawn between workers' skills and their job tasks in the conceptual framework on which Goldin and Katz build. The essay argues that allowing for a richer set of interactions between skills and technologies in accomplish- ing job tasks both augments and refines the predictions of Goldin and Katz's approach and suggests an even more important role for human capital in economic growth than indicated by their analysis. (JEL I20, J24, J31, O30)

Schooling, educational achievement, and the Latin American growth puzzle

Abstract: Latin American economic development has been perceived as a puzzle. The region has trailed most other world regions over the past half century despite relatively high initial development and school attainment levels. This puzzle, however, can be resolved by considering educational achievement, a direct measure of human capital. We introduce a new, more inclusive achievement measure that comes from splicing regional achievement tests into worldwide tests. In growth regressions, the positive growth effect of educational achievement fully accounts for the poor growth performance of Latin American countries. These results are confirmed in a number of instrumental-variable specifications that exploit plausibly exogenous achievement variation stemming from historical and institutional determinants of educational achievement. Finally, a development accounting analysis finds that, once educational achievement is included, human capital can account for between half and two thirds of the income differences between Latin America and the rest of the world.