Does Human Capital Strongly Affect Economic Growth Rates? Yes, But Only If Assessed Properly

Abstract

AbstractAlthough modern growth theories regard human capital endowment as a determinant of economic growth rates, econometric research does not consistently support this view by empirical evidence. In principle, this discrepancy might arise either from misleading theories or from poor measurement of human capital endowment. Here, it is argued that poor measurement is the culprit, and that one should substitute results from psychological testing, i.e.IQ, for widely accepted measures based on schooling. In order to demonstrate both the superiority of IQ over schooling derived measures as well as the robustness of IQ effects on growth, the new measure is entered in the Mankiw, Romer and Weil and the De Long and Summers frameworks which differ in the specification of growth equations and, in particular, in their treatment of investment. It is demonstrated that IQ effects are at least about equally strong and robust determinants of growth as catch-up opportunities, whether investment is included or excluded, narrowly or broadly defined. If investment is included, its effects are in the same order of magnitude as those of catch-up opportunities or IQ. Since IQ is correlated with state antiquity, since state antiquity might offer