The role of human capital in economic growth: A case study

The Solow growth model does an unsatisfactory job in explaining income disparity across countries with rates of saving and population growth as the only determinants. An important branch of empirical macroeconomic literature examines international income differences and the trend of convergence by including human capital in the Solow growth model, and clearly establishes that human capital plays a very important role in the growth process. However, allowing for differences in the aggregate production function across countries with a panel data approach, Islam (1995) finds that human capital fails to enter significantly. This paper re-examines the role of human capital in the growth equation, applying the same approach as Islam's. A sensitivity analysis is also conducted to test the sensitivity of the results to a variety of specification alterations such as different measures of variables and different time periods.