Economic growth and economic development 511

Introduction to Modern Economic Growth
Solving this dierential equation, we obtain
ả
á
à
(h) AF (0)
A (0) φ (h) AF (0)
−
exp (gt) +
exp (gF t) ,
A (t) =
g
gF − g
gF − g
which shows that the growth rate of A (t) is faster when φ (h) is higher. Moreover,
it can be verified that

φ (h)
AF (t) ,
gF − g
so that the ratio of the technology in use to the frontier technology is also determined
A (t) →

by human capital.
The role of human capital emphasized by Nelson and Phelps is undoubtedly
important in a number of situations. For example, a range of empirical evidence
shows that more educated farmers are more likely to adopt new technologies and
seeds (e.g., Foster and Rosenzweig, 1995). The Nelson and Phelps’ conception of
human capital has also been emphasized in the growth literature in connection with
the empirical evidence already discussed in Chapter 1, which shows that there is
a stronger correlation between economic growth and levels of human capital than

between economic growth and changes in human capital. A number of authors, for
example, Benhabib and Spiegel (1994), suggest that this may be precisely because
the most important role of human capital is not to increase the productive capacity
with existing tasks, but to facilitate technology adoption. One might then conjecture
that if the role of human capital emphasized by Nelson and Phelps is important in
practice, human capital could be playing a more major role in economic growth and
development than the discussion so far has suggested. While this is an interesting
hypothesis, it is not entirely convincing. If the role of human capital in facilitating
technology adoption is taking place within the firm’s boundaries, then this will be
reflected in the marginal product of more skilled workers. Workers that contribute
to faster and more effective technology adoption would be compensated in line with
the increase in the net present value of the firm. Then the returns to schooling and
human capital used in the calculations in Chapter 3 should have already taken into
account the contribution of human capital to aggregate output (thus to economic
growth). If, on the other hand, human capital facilitates technology adoption not
at the level of the firm, but at the level of the labor market, this would be a form
of local human capital externalities and it should have shown up in the estimates
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