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on local external effects of human capital. It therefore would appear that, unless
this particular role of human capital is also external and these external effects work
at a global level, the calibration-type exercises in Chapter 3 should not be seriously
underestimating the contribution of human capital to cross-country differences in
income per capita.
10.9. Taking Stock
Human capital differences are a major proximate cause of cross-country differences in economic performance. In addition, human capital accumulation may play
an important role in the process of economic growth and economic development.
These considerations justify a detailed analysis of human capital. This chapter has
presented a number of models of human capital investments that have emphasized
how human capital investments respond to future rewards and how they evolve over
time (with schooling as well as on-the-job training).
Four sets of related but distinct issues arise in connection with the role of human
capital in economic growth. First, if some part of the earnings of labor we observe
are rewards to accumulated human capital, then the effect of policies (and perhaps
technology) on income per capita could be larger, because these would affect not
only physical capital accumulation but also human accumulation. The neoclassical
economy with physical and human capital studied in Section 10.4 models and quantifies this effect. It also provides a tractable framework in which physical and human
capital investments can be studied simultaneously. Nevertheless, any effect of human capital differences resulting from differences in distortions or policies across
countries should have shown up in the measurements in Chapter 3. The findings
there suggest that human capital differences, though important, can only explain
a small fraction of cross-country income differences (unless there is a significant
mismeasurement of the impact of human capital on productivity).
The second important issue related to the role of human capital relates to the
measurement of the contribution of education and skills to productivity. A possible source of mismeasurement of these effects is the presence of human capital
externalities. There are many compelling reasons why there might exist significant
pecuniary or technological human capital externalities. Section 10.6 illustrated how
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