Education, human capital accumulation and economic growth: The Caribbean experience

Following the seminal contributions of Romer (1986) and Lucas (1988), the importance of human capital as a source of economic growth has been incontrovertibly recognized. In fact, human capital accumulation may be of greater importance than physical capital. Since education remains the prime mover in the process of human capital formation and in developing countries, is by and large with the government, this study hypothesized that government spending on education can be taken to proxy human capital.;The effective supply of human capital accumulation to the economy's productive process is a function of education at basic (secondary) and advanced (tertiary) levels. Accordingly, government's allocation of funding to education is the crucial determinant of the extent and quality of human capital formation. And, depending on its level-specific variations, a given human capital accumulation can have differential impacts sector-wise and on economic growth in general.;In this light, this study evaluated the level-specific impact of human capital on economic growth in four Caribbean countries with the Lucas (1988) model providing the theoretical underpinnings. This study hypothesizes that government spending on education influences human capital accumulation at various levels and that human capital has level-specific effects on output sector-wise, and indirectly affects aggregate output. The Econometric estimates revealed that government spending on education had different impacts on human capital accumulation at the secondary and tertiary levels. It was also found that the impact of human capital accumulation at the tertiary level for countries with lower performance indicators had a negative impact on aggregate output and for countries with stronger performance indicators; human capital at the tertiary level had a significant and positive impact on aggregate output. Thus, this study concludes that there are level-specific effects of human capital on output.