Human Capital and Growth Robert J. Barro The American Economic Review, Vol. 91, No. 2, Papers and Proceedings of the Hundred Thirteenth Anaual Meeting of the American Economie Association. (May, 2001), pp. 12-17. Stable URL: Ittpflinksjstor.orgsici?sici=0002-8282% 28200 105%209 1%BA2%IC12%3AHCAG%IE20.CO%AB2-%23 ‘The American Economic Review is curvently published by American Economic Association. ‘Your use of the ISTOR archive indicates your acceptance of ISTOR’s Terms and Conditions of Use, available at fp (fw. jstor orglaboutitersihtml. ISTOR's Terms and Conditions of Use provides, in part, that unless You. have obtained prior permission, you ray not download an entire issue of &joumal or multiple copies of aricies, and You may use content in the ISTOR archive only for your personal, non-commercial use Please contact the publisher cegarding any further use of this work. Publisher contact information may be obtained at bupsorw.jstoc.org/joumals/aca html. 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BaRko* Since the late 1980's, much of the atention fof macroeconomists has focused on the deter- rminants of Jong-ter economic growth, This paper emphasizes the role of esveation, The analysis distinguishes the quamtity of education, rieasured by Years of sctool attainment, from the cualty, as sauged by scores on iatemation- ally compacable examinations I, Basie Empirical Results on Growth ‘The empirical framework, desived from an extended version of the neoclassical growth ‘mode! and suramarized in, Barro (199), ean be described by a ‘where » is per capita product, y* is the (ong-cun level af y, and Dy is the growth vate. In the neoclassical mode!, Dy is inversely related to y and positively selated to y*, The value y* de~ pends on government policies and institutions and om the character of the national population, For example, better enforcement of property rights, fewer market distortions, ard a greater willingness to save tend to raise y*. Ina setting that includes human capital, » would be gener- alized to encompass the levels of paysical and human capital. Ia some thearies, Dy rises with the vatio of fnuman t piaysical capital. ‘The empirical analysis applies to roughly 100 ‘countries and therefore includes countries. at D: Foy) * biscusamts: Staley Bagerran, University of Rectes Rober! Margo, Vander Unieenity Clayne Pape, igham Young University. = Beonomice Depirent, Harvard Uniersiy, Com loge, MA 02138. This research has bean, supported, ie fats by the Natqral Scenes Fosndaton [ appesiate the Sssatarce wih the edict da provided by my een aaa, fag Wha Lee 2 very different levels of economic development. ‘Table I shows panel rearession estimates for the determination of the growth rate of real_pet capita GDP." Henceforth, the designation GDP refers (0 teal per capita GDP.) The growth rate is measured over three ten-year periods, 1965- 1975, 1975-1985, and 1985-1998, Estimation is by itree-stage least squares, using lags of the independent variables es instruments (see the notes to Table 1). The effects of the variable. » show up in the level and square of lag(GDP) at the start of each period. The other repressors re measures of government consumption, cule of law, international openness, the inflation cate, the fertility cate, the ratio of investment GDP, she tetms of trade, and the quantity and quality of schooling. Before focusing on education, I summarize the results for the other variables. The Level of GDP-—AS is well known, the simple relation between growth rates and init levels of GDP is virtually cil. However, when the other independent variables shown in Table [are held constant, there is & sicong relation between grovth rafé and level. The estimated coefficients are significantly positive for log- (GDP) and negative forthe square of log GDP). ‘Those coefficients imply the partial relation be- veen growth rate and level as shown in Figure For the poorest countries (with GDP below $580 in. 1985 prices), the marginal effect of log(GPP) on the growth sate is small and may be positive, For the tichest countries, the. mar inal effect is strongly negative. For example, for the United States, which in 1995 had the second-largest GDP $18,951 in 1985 prices), "The GDP figures ip 1985 prices are che purchasing: power pargy-adjaned, chainwuighued values fiom tie Pens Wout Tate of Robert Sanstes sed Alan Hestoo, version 56 These data are avelaole on the Inernet fore the Nanoral Buea of Bandon Reseach (aber or)von 9.NO 2 ‘Taps 1 Panes, Reczessiqn FoR Gaver RATE Tesependen variable Eoetacknt oaper expe GDP) au07 0.025) Lonipesexpita ODP) squid 0.084 0.0016) Mate secondary ard higher setaotng ones 0.0018) Gov. consampsion GDP ~o1st om Role of aw index 0138 0.0056) Opensess tio oa 043) (Oneanes tio) ¥ lop GOP) ~nause (0.0088) Iation rate 0a? (@.0080) Lager fei vate) 0005 0.0050) Tavesonen@DP 9.83 (9.006) hh ae of ter of ade oo 030) ‘Nurtess of obsarvarces st, 34, 81 B 00,054,047 Dates: Te dependent varia the get ate of espe ‘ante GDP fo each ofthe peed 1965-1975, 1975-1985, land 1985-1995. Indica Sons re need i ac uel foreach psc: The log of real per capita GDP and he ‘erage years of sco! atrment ae measles a > beg ting of earh penn! Cvemment exnavmgtion 1 messed xcestvely of Spending ox advan and defense. The gp es ao the ato of exp pastors to GDP, Hed Tor he estited an af thir to eary 26 88 eased by he Lag flan aes and population The Bo ‘meth consumption rai, the operas a, the eto of ‘noes (reste pbs gi) ODP, the aon rte os conse ses), Re Feet ke, andthe och ate af ‘Be cauns of wade (x00 ove imo pie) ae ase” se: ages Boe the as ped, the govern ard vette ‘alos ae fr 1985-1982) The valle opeanesy "ato TegGDP) isthe apeanese taco mui by che ag of er aia GDP tthe sat of the pied The eo ow en i the eats value evaahle ft 1982 a¢ 1985) im thet te futieny andthe ped avstne for he a cautcn. eatcwaon is ty Ciewstege leat squares, Instumenis ane he actl values of the secling, opens, 203 ters fade variables, an lagged values of te ote variables The eatest vac available foe che tue-otlaw inde (for 1982. 1985s neds a an stare oe the ft 90 equations, and the 1985 value Ts ieloded for tMe thie equation, Satdard onogs ae how in parentheses. Te A ‘ls agply lo etch geod segsrtely HUMAN CAPITAL: GROSTH, HISTORY, AND POLICE 8 on z 3 Growth Rate (unexplained part) & 6? 8 8 1 Log{Per Capita GDP} quae 1. Grow Rane vensus LactGDP) Nowe: The vaile on the veel asi isthe growth ate et ofthe estate eet of al eaptanatory vaabes ede fom log(GDP) and is squace, The value plied vas ac: rnaliza to make is ran value 220, the estimated marginal effect is -0.058. This convergence coefficient implies that an increase in GDP by 10 percent lowers the growth rate on impact by 0.6 percent pet year. Government Consumption —The ratio. of govemment consumption to GDP, GY, is in tended to measure. public outlays that do not dixectly enhance productivity. The estimated cf fect on growth is signftcantly negative: an in crease in G/Y by 10 percentage points is estimated f0 reduce the growth rate on impact by 1.6 percent per year Rule of Laow,—Many analysts believe that se- cere property rights and a strong legal system are central for economic growth These factors fave been assessed subjectively by a number af inter national consulting companies, eluding Political Risk Services in its publication freermadional 4m prevoup analyses, Labo lacked for effects of de oct, messed by goles) igh or cil ties Rests using subjective ta fom Freedom Bouse (ce Reymond D. Gest, 1982-1583) incite eat these mes fre ave Tule expanscny power for low once the xolaatary wsiales show ie Table Lae ld cnet?