Human capital and economic *growth in the open economy: An appeal to robustness

Human capital is the "know how" of the work force that increases the productivity of each worker. Investment in human capital has been one of the major sources of growth in all modern economies during this century. Past studies of economic growth and human capital have used cross-sectional methodology. They found a close correlation between human capital variables and economic growth.;This study contributes to the research literature by investigating the findings from a time-series perspective. This type of analysis had not been previously conducted. The results of this time-series analysis reinforce the conclusions of the past studies. Using data from three geographical regions, this study finds that for the South American region, enrollments at the elementary, secondary, and university levels of education contribute significantly to economic growth. In the more developed North American/European and East Asian regions, it was found that enrollments at the secondary and higher levels and expenditures on education contributed significantly to economic growth.;The United States was used to test a more dynamic model of the relationship between human capital and economic growth, because of availability of a data set with more years of observations. A vector autoregression (VAR) model, with impulse-response functions was used. With educational enrollments, there was no immediate effect on GDP per capita growth as the students are enrolled in school, but there was a positive effect on the economy over the next 20 years as the students entered the workforce. For educational expenditures, there was a positive effect on the growth rate of the economy when more money is spent on education for the first year. Then the oscillations of GDP growth in response to a one-time shock to the growth rate of educational expenditures continue for the next 12 years. Thus, as students leave school with a better education and work for the next 20 years, the effect of this education increases the growth rate of GDP.