Growth distance frontier

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Growth, Distance to Frontier and Composition of Human Capital∗
Jérôme Vandenbussche Harvard University, UCL and CERAS Philippe Aghion† Harvard University and IFS Costas Meghir University College London and IFS August 2004
Abstract We examine the contribution of human capital to economy-wide technological improvements through the two channels of innovation and imitation. We develop a theoreticalmodel showing that skilled labor has a higher growth-enhancing effect closer to the technological frontier under the reasonable assumption that innovation is a relatively more skillintensive activity than imitation. Also, we provide evidence in favor of this prediction using a panel dataset covering 19 OECD countries between 1960 and 2000 and explain why previous empirical research had found nopositive relationship between initial schooling level and subsequent growth in rich countries. In particular, we show that in OECD economies it is crucial to isolate the two separate margins of primary/secondary and tertiary education. Interestingly, the latter type of schooling proves to be a factor of economic divergence.

∗ JEL No: I20, O30, O40. Keywords: economic growth, human capital,education, imitation, innovation, convergence, technological frontier, wave. This research emerged from a request by the French Conseil d’Analyse Economique to produce a report on Education and Growth. We thank Jess Benhabib, Daniel Cohen, Elie Cohen, Mathias Dewatripont, Xavier Gabaix, Elhanan Helpman, Jean Pisani-Ferry, Chris Udry and Laura Valderrama for very helpful comments. The paper also benefitedfrom the feedback of seminar participants at Fédération Paris-Jourdan, Harvard University, Universitat de Barcelona, UCL, UQAM, Yale University, the January 2004 AEA meetings in San Diego and the Januray 2004 PAI conference on higher education in Toulouse. We are grateful to Rafael Domenech, Guy Neave and Jim Snyder for sharing their data with us. The authors wish to thank the ESRC researchcentre at the IFS and the Centre for Economics of Education which provided finanial assistance. † Corresponding author. Department of Economics, Harvard University, Cambridge MA 02138. Email address:




In their recent survey on education and economic growth, Krueger and Lindahl (2001) find that ”education [is] statistically significantly and positivelyassociated with subsequent growth only for the countries with the lowest level of education”. As these two authors, we view this finding as a puzzle. Why is the relationship between education and growth different in rich countries? More interestingly, why is this relationship insignificant? One plausible reason is that education favors the adoption of new technologies, as noticed by Nelson and Phelps(1966). Since rich countries are closer to the technological frontier, the strength of the catch-up effect with the frontier vanishes with the relative level of development. However, this explanation omits the fact that the source of technological progress is dual. It is the result not only of the adoption of existing technologies but also of pure innovation, especially in technologically advancedeconomies. Moreover, tasks of imitation and innovation require different types of human capital; in particular, it is reasonable to assume that unskilled human capital is better suited to imitation than to innovation. Taking into account endogenous labor allocation across these two activities, each type of human capital’s impact on growth should depend on a country’s level of technologicaldevelopment. To solve the puzzle posed by Krueger and Lindahl, we therefore need to focus attention both on an economy’s distance to the technological frontier and on the composition of its human capital (as much as on its level).1 In the theoretical part of the paper, we develop an endogenous growth model, where technological improvements are the result of a combination of innovation and imitation (or...
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