Human Capital, Difussion Model, And Endogenous Growth: Evidence From Arellano-Bond Specification

Abstract

Abstract

Human Capital is undeniably a very important factor for economic growth. In this paper, we investigate the impact of Human Capital on growth using the Neoclassical and Endogenous Growth models. We use the Generalized Method of Moment (GMM) method with 8 different Human Capital proxies measured in terms of quantity and quality of education. Using the LSDV method, we find: (i) Human Capital plays a significant rolein explaining growth, (ii) Identical initial technology assumption cannot be ignored in the growth model, (iii) The selection of proxies in terms of quantity and quality of education is very influential on the conclusion of the impact of Human Capital. to growth. With the GMM method, it is concluded that followers will diffuse to catch-up leader, while countries that are close to the leader will take advantage of the power of innovation. Our results also reinforce the view that trade and institutions are two of the most influential factors in our model. Finally, it is important to examine the issue of income inequality in developing country growth models and the issue of reverse causality between education and economic growth.

Keywords: Human Capital, Education, Endogenous Growth, Generalized Method of Moment (GMM).