Human capital and formation of Knowledge capital in an information setup.

1. Explaining modern growth
It’s human capital….

2. Some figures
 Last millennium:
 World population growth = 22-fold
 Income per capita growth = 13-fold
 World GDP growth = 300-fold
 1000-1820
 Income per capita growth = 50%
 Life expectancy = 24 years
 1820 onwards:
 Income per capita growth = 8-fold
 Life expectancy now = 66 years

3. No consensus
 Economic growth models have attempted to
explain the change in growth rates but no
consensus has emerged.

4. Regularities – modern times
 Per capita output grows over time and its
growth rate does not tend to diminish
 Physical capital per worker grows over time
 The shares of labor and physical capital in
national income are nearly constant
 The growth rate of output per worker differs
substantially across countries.

5. Divergence
 Modern economic growth:
 Divergence in relative productivity levels and living
standards.
 In the last century: income in the “less” developed countries
have fallen far behind those in “developed” countries.
 Developed countries:
 Strong convergence in per capita incomes within these
countries
 No obvious acceleration of overall growth rates over time.

6. What we see in the data
 Variability of growth rates over time
 Variability of growth rates between countries
 Convergence in richer countries

7. Growth rates over time
Annual Growth Rates by decade
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990
US Italy Argentina

8. Growth between countries
GDP per capita
1990 International Geary-Khamisdollars
0
5000
10000
15000
20000
25000
30000
1 1000 1500 1600 1700 1820 1900 1950 2000
Western Europe
Western Offshoots
Asia
Africa
World
Latin America

9. Convergence club
Convergence: GDP per capita
- Western Europe & Western Offshoots-
0
5,000
10,000
15,000
20,000
25,000
30,000
1
8
7
0
1
8
7
6
1
8
8
2
1
8
8
8
1
8
9
4
1
9
0
0
1
9
0
6
1
9
1
2
1
9
1
8
1
9
2
4
1
9
3
0
1
9
3
6
1
9
4
2
1
9
4
8
1
9
5
4
1
9
6
0
1
9
6
6
1
9
7
2
1
9
7
8
1
9
8
4
1
9
9
0
1
9
9
6
Denmark
France
Germany
Italy
Sw itzerand
United Kingdom
Australia
Canada
United States

10. Making a miracle by Lucas
GDP per capita growth (1960-2000)
Philippines: 62%
South Korea: 1200%
GDP per capita growth, annual rate (1960-2000)
Philippines: 1.2%
South Korea: 6.6%

11. East Asian miracle
 Features
 Large exporters of manufactured goods of
increasing sophistication.
 Highly urbanized and increasingly well-educated.
 High savings rates.
 Pro-business governments.

12. Human capital
 The main engine of growth
 Main source of differences in living standards
among nations.
 Physical capital plays an essential but
subsidiary role.
 Expansion of the definition of HK: not only
formal education but on the job.

13. Lucas’ contribution
 Human capital: additional input in production
 Labor force can accumulate human capital
 Accumulation of human capital involves a
sacrifice of current utility

14. Why isn’t the whole world developed?
By Easterlin
 Spread of economic growth depended on the
diffusion of knowledge of new production
techniques.
 Acquisition of knowledge closely associated with
formal schooling.
 The expansion and establishment of formal
schooling has depended in large part on political
conditions and ideological influences.
 Since WWII, modern education systems have been
established almost everywhere
=> spread of modern economic growth accelerated.

15. Slow spread of economic growth
 Why has technological change been limited
to so few nations?
 Transfer of technology as an educational
process:
 Teachers’ side: readily access to new technology.
 Students’ side: no native differences among
nations in the native intelligence of their
populations.
 Problem: different incentives for learning.

16. Growth and schooling
 The more schooling, the easier to master
new technological knowledge.
 Significant increases in formal schooling
=> improvement in the incentive structure.

17. Primary enrolment per 10,000
0
500
1000
1500
2000
2500
1830 1850 1882 1900 1910
USA
UK
Argentina
Mexico
Japan

18. Education and growth
 More advanced nations educationally
developed first.
 Cause-effect: effect of education on
economic growth or vice-versa?

19. The political economy of growth
 Political roots to mass education
 Colonialism
 Monarchical rule
 Catholic Church

20. Conclusions and predictions
 Expansion of formal schooling:
 positive shift in the incentive structure
 Commitment to mass education:
 Symptom of major shift in political power
 Greater social mobility
 Once developing countries complete their
demographic transition: long-term per capita
growth as high as in developed countries.

21. Easterlin’s contributions
 Three aspects of knowledge facilitate growth
 new knowledge is complementary to existing
knowledge.
 knowledge is non-rival.
 knowledge is only partially excludable.

22. Data
Source: World Development Indicators.

23. Data