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Introduction to Modern Economic Growth on local external effects of human capital It therefore would appear that, unless this particular role of human capital is also external and these external effects work at a global level, the calibration-type exercises in Chapter should not be seriously underestimating the contribution of human capital to cross-country differences in income per capita 10.9 Taking Stock Human capital differences are a major proximate cause of cross-country differences in economic performance In addition, human capital accumulation may play an important role in the process of economic growth and economic development These considerations justify a detailed analysis of human capital This chapter has presented a number of models of human capital investments that have emphasized how human capital investments respond to future rewards and how they evolve over time (with schooling as well as on-the-job training) Four sets of related but distinct issues arise in connection with the role of human capital in economic growth First, if some part of the earnings of labor we observe are rewards to accumulated human capital, then the effect of policies (and perhaps technology) on income per capita could be larger, because these would affect not only physical capital accumulation but also human accumulation The neoclassical economy with physical and human capital studied in Section 10.4 models and quantifies this effect It also provides a tractable framework in which physical and human capital investments can be studied simultaneously Nevertheless, any effect of human capital differences resulting from differences in distortions or policies across countries should have shown up in the measurements in Chapter The findings there suggest that human capital differences, though important, can only explain a small fraction of cross-country income differences (unless there is a significant mismeasurement of the impact of human capital on productivity) The second important issue related to the role of human capital relates to the measurement of the contribution of education and skills to productivity A possible source of mismeasurement of these effects is the presence of human capital externalities There are many compelling reasons why there might exist significant pecuniary or technological human capital externalities Section 10.6 illustrated how 498