Matching up the data on education with economic growth models

Abstract

The growth literature has not yet established how data on education should be introduced in theories involving human capital. Early work used enrolment rates as a proxy of human capital whereas more recently it has utilized measures of average educational attainment taking advantage of new data sets. This paper examines alternative specifications of human capital that may match up with the existing data on education. First, we present a standard neoclassical two-sector growth model that adopts a human capital specification proposed in recent papers. In this model the fraction of individual’s time endowment in schools is viewed as an investment rate. We chose that the optimally chosen educational attainment predicted by the calibrated two-sector model is very high and does not correspond to the data. Next, we investigate two growth models with alternative specifications of human capital that are successful in predicting educational attainment levels comparable to those observed in the data.