Economic growth and economic development 511

Introduction to Modern Economic Growth Solving this differential equation, we obtain ả (h) AF (0) A (0) φ (h) AF (0) − exp (gt) + exp (gF t) , A (t) = g gF − g gF − g which shows that the growth rate of A (t) is faster when φ (h) is higher Moreover, it can be verified that φ (h) AF (t) , gF − g so that the ratio of the technology in use to the frontier technology is also determined A (t) → by human capital The role of human capital emphasized by Nelson and Phelps is undoubtedly important in a number of situations For example, a range of empirical evidence shows that more educated farmers are more likely to adopt new technologies and seeds (e.g., Foster and Rosenzweig, 1995) The Nelson and Phelps’ conception of human capital has also been emphasized in the growth literature in connection with the empirical evidence already discussed in Chapter 1, which shows that there is a stronger correlation between economic growth and levels of human capital than between economic growth and changes in human capital A number of authors, for example, Benhabib and Spiegel (1994), suggest that this may be precisely because the most important role of human capital is not to increase the productive capacity with existing tasks, but to facilitate technology adoption One might then conjecture that if the role of human capital emphasized by Nelson and Phelps is important in practice, human capital could be playing a more major role in economic growth and development than the discussion so far has suggested While this is an interesting hypothesis, it is not entirely convincing If the role of human capital in facilitating technology adoption is taking place within the firm’s boundaries, then this will be reflected in the marginal product of more skilled workers Workers that contribute to faster and more effective technology adoption would be compensated in line with the increase in the net present value of the firm Then the returns to schooling and human capital used in the calculations in Chapter should have already taken into account the contribution of human capital to aggregate output (thus to economic growth) If, on the other hand, human capital facilitates technology adoption not at the level of the firm, but at the level of the labor market, this would be a form of local human capital externalities and it should have shown up in the estimates 497