Diagnosing Human Capital as a Binding Constraint to Growth: Tests, Symptoms and Prescriptions

Abstract:

The empirical literature on the contributions of human capital investments to economic growth shows mixed results. While evidence from OECD countries demonstrates that human capital accumulation is associated with growth accelerations, the substantial efforts of developing countries to improve access to and quality of education, as a means for skill accumulation, did not translate into higher income per capita. In this paper, we propose a framework, building on the principles of Growth Diagnostics (Hausmann, Rodrik and Velasco, 2008), to enable practitioners to determine whether human capital investments are a priority for a country’s growth strategy. We then discuss and exemplify different tests to diagnose human capital in a place, drawing on the Harvard Growth Lab’s experience in different development context, and discuss various policy options to address skill shortages.