This paper outlines a theoretical framework for thinking about the role of
human capital in a model of endogenous growth. The framework pays particular
attention to two questions: What are the theoretical differences between
intangibles like education and experience on the one hand, and knowledge or
science on the other? and How do knowledge and science actually affect
production? One implication derived from this framework is that the initial
level of a variable like literacy may be important for understanding subsequent
growth. This emphasis on the level of an input contrasts with the usual
emphasis from growth accounting on rates of change of inputs. The principal
empirical finding is that literacy has no additional explanatory power in a
cross-country regression of growth rates on investment and other variables, but
consistent with the model, the initial level of literacy does help predict the
subsequent rate of investment, and indirectly, the rate of growth.
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