DP4860 | Growth, Distance to Frontier and Composition of Human Capital

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We examine the contribution of human capital to economy-wide technological improvements through the two channels of innovation and imitation. We develop a theoretical model showing that skilled labour has a higher growth-enhancing effect closer to the technological frontier under the reasonable assumption that innovation is a relatively more skill intensive activity than imitation. Also, we provide evidence in favour of this prediction using a panel dataset covering 19 OECD countries between 1960 and 2000 and explain why previous empirical research had found no positive 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.