Human capital and growth –Quantitative implications of the Solow model –Extending the share of the accumulated factor: human capital –The open economy growth model with human capital Mankiw, N.G., D. Romer and D.N. Weil A Contribution to the Empirics of Economic Growth. Quarterly Journal of Economics 107(2):

Quantitative implication in neo-classical growth models

For α = 1/3 (discussion), the elasticity for s is 0.5, too small (and smaller for n) to explain Cross-country differences in living standards (ratio of 20 to 1 between per capita GDP of US and some poor countries)

Mankiw Romer and Weil (1992) argues that the elasticities are too small In neo-classical growth models: the variances of s and n are too small Compare to the variances of y across countries. The solution: increase the share of accumulated capital in Nat. Acc. How? Part of (1-α)Y (the share of labour) is the implicit return To human capital H, which can be accumulated. Suppose that on steady-state, h/k = C = cte

And it follows from the preceding analysis that: According to Mankiw, Rome and Weil (1992), η +-= 0.5 Same finding in Coulombe and Tremblay JES 2001 Making α+η, the broad capital share, around 0.8 And the elasticities in 1.27' around 4 (8 times greater than before) With such elasticities, Neo-classical growth models are able To ‘explain’ cross-country differences Neo-classical growth models need H!!!!

The open economy model of Barro, Mankiw and Sala-i-Martin AER (1995) Ref.: Barro and Sala-i-Martin (2004, sections 3.3 (3.1) and 3.4 (3.2)) Neo-classical growth with N economies Perfect capital mobility for the financing of K Infinite convergence speed in the basic model: A small initial k(0) → a high MPK Massive capital inflows The solution: borrowing constraint

Problems regarding the financing of human capital Demonstrate the two following important points:

Versus Analyse and discussion Case study: JOURNAL OF REGIONAL SCIENCE, VOL. 47, NO. 5, 2007, pp. 965–991. SKILLS, EDUCATION, AND CANADIAN PROVINCIAL DISPARITY Serge Coulombe and J.F. Tremblay