THREE ESSAYS CONSIDERING HUMAN CAPITAL COMPOSITION AND ECONOMIC GROWTH

Abstract

Human capital has long been recognized as a crucial determinant of economic development. The main contribution of my dissertation is to both theoretically and empirically demonstrate the idea that the composition (different types of education) of human capital determines technological progress and affects long-run economic growth. As compared to traditional human capital and growth literature, it emphasizes the composition effect of human capital, rather than the level effect, on economic development. It provides a new perspective in characterizing the stages of economic development along the growth path. Optimal human capital composition benefits not only lesser developed countries who usually lack educational resources but also developed countries with limited population growth potential. The first chapter, titled ``Education, Technology, Human Capital Composition and Economic Development'', develops a framework of endogenous educational decisions and technological progress to explore the human capital composition and its effects on economic growth. In this model, growth is driven by technological advancement, which depends on the human capital composition. Individuals can choose from different types of workers: unskilled workers, generalists or specialists. Both generalists and specialists, through technological progress, are able to enhance growth. The model considers the role of technology stock, coordination cost, education cost and worker's innate ability on the human capital composition and economic growth. The main result shows the improvement in the composition of human capital promotes economic growth in most economic stages. However, this positive effect tapers off as the economy reaches complete specialization. This provides a possible explanation for the convergence of economic growth to zero asymptotically in the long run. I extend the argument into an open economy framework in the second chapter, titled ``Migration Effects on Home Country's Composition of Human Capital and Economic Development''. This chapter examines migration effects on domestic composition of human capital and economic growth. The net effect of migration depends on two facets. On one hand, the possibility of migration provides incentives for workers to invest in education and consequently increases the fraction of skilled workers in home country's human capital composition. On the other hand, increased population of skilled emigrants hinders the accumulation of human capital. A sufficient condition for beneficial migration is derived: if the ex ante domestic fraction of unskilled worker is relatively high, allowing the home country to achieve faster economic growth with migration. The last chapter, titled ``The Effect of Tertiary Education Composition on Economic Growth'', differentiates types of tertiary education by ISECD levels and empirically investigates their effects on economic growth. I use panel data on a group of 77 countries for the period 1998-2011. In dynamic panel data estimation, a potential endogeneity bias could arise due to the inclusion of lagged dependent variables. Several methods are applied to overcome the issue, such as Anderson-Hsiao estimator, the Difference Generalized Method of Moments estimator and the System Generalized Method of Moments estimator. The study shows a significantly positive relationship between short-cycle tertiary education and real GDP per capita for both developed and developing countries. However, undergraduate and graduate education only positively correlate to economic growth in developed countries. The empirical results are informative for developed countries as well as developing countries. Understanding the contribution of tertiary education in different levels allows them to effectively allocate resources and appropriately integrate it in growth policies.