Global | Convergence in human capital and income

Summary

Based on the endogenous growth model of Lucas (1988 and 1990), in this Working Paper we propose a method to measure the total contribution of human capital to the variance of GDP per capita in a large sample of countries from 1960 to 2015.

Key points

• Key points:
• Followed by a long period of divergence of income levels, new evidence shows that poorer countries are converging with the income levels of richer economies.
• In a model where human capital is the engine of growth, our results indicate that human capital is a very significant variable in explaining the accumulation of physical capital and employment rates. Its effects on GDP per capita have been increasing from 1960 to 2015.
• We also show that the total variance of human capital can explain a considerable part of the variance in per capita income across countries.
• While the residual variance remains relatively constant across the sample, the variance of GDP per capita and the total variance of human capital exhibit similar dynamics.
• According to our results, the total variance of human capital explains 88% of the increase in the variance of GDP per capita between 1960 and 2000, and 56% of its decrease between 2000 and 2015.

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