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Comments on “Human capital and the wealth of nations” by R. Manuelli and A. Seshadri

Comments on “Human capital and the wealth of nations” by R. Manuelli and A. Seshadri What the paper is about : Accounting of output per worker Novelty: quality of education is taken into account, at least conceptually.

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Comments on “Human capital and the wealth of nations” by R. Manuelli and A. Seshadri

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  1. Comments on “Human capital and the wealth of nations” by R. Manuelli and A. Seshadri • What the paper is about: • Accounting of output per worker • Novelty: quality of education is taken into account, at least conceptually. • Main finding: most of cross-country income differences due to factor accumulation, not TFP.

  2. Details: • y = z kq h1-q • y = output, k = physical capital,h = human capital, z = TFP • In the paper: h = h(s, investment)In Hall and Jones : h = ers • Lowest quintile has TFP equal to 73% of the US levelHall and Jones estimate it at 20% (?) • Interpretation: ignoring differences in quality of education amplifies differences in TFP.

  3. Alternative interpretations: • Differences in human capital across countries are exaggerated: • Schooling quantity and quality (and thus h) are estimated from calibration. • Top/bottom quintile quantity : 20% higher in calibration than data • Top/bottom quintile quality: almost 40% higher in calibration • Quality is not properly measured: • Proxy is public spending in schooling per pupil/GDP per worker • It ignores private spending • Does a higher ratio really mean better quality? • Different PWT databases. Does it matter?

  4. Two more caveats: • Calibration for the US around 2000 from steady state implications of the model. • Worst year to assume steady state in the US (period of abnormally high growth rates – “new economy”) • Estimates of human capital in the rest of the world also based on steady state assumption. • In general, is a country ever in steady state? • Role of h is inflated because of its endogenous response to TFP changes. • In equilibrium h is ultimately determined by TFP (through wages) and life expectancy

  5. Further research I: the “Becker Paradox” • Convergence in life expectancy but not in years of schooling. What can the model say on this?

  6. Further research II: Macro-Mincer return • Better education quality implies a higher return on schooling, ceteris paribus. • For each country r = ra + rwhere ra = average world return; r = deviation from average • Standard growth regression: Dy = c + aDk + rDs + e  Dy = c + aDk + raDs + e , where e = rDs +e • So omitting schooling quality from growth regressions would bias the estimated ra up. In practice it is 0. Can the model explain this?

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