Human Capital and Macroeconomic Growth: Austria and Germany 1960-1992

In an influential paper Mankiw, Romer and Weil (1992) argue that evidence on the international disparity in levels of per-capita income and rates of growth is consistent with a standard Solow model, once it has been augmented to include human capital as an accumulable factor. In a study on Austria and Germany we augment the Solow model to allow for the accumulation of human capital. Based on a perpetual inventory estimation procedure we construct an aggregate measure of the stock of human capital of Austria and Germany by weighting workers of different schooling levels with their respective wage income. We obtain an estimate of the wage income of workers with different schooling from a Mincer-type wage equation, which quantifies how wages change with human capital. We find that the time-series evidence on Austria and Germany is not consistent with a human capital augmented Solow model. Factor accumulation (broadly defined to include human capital) appears to be less (and not more) able to account for the cross-country growth performance of Austria and Germany when human capital accumulation is included in the analysis. We then test an alternative model in which human capital acts as a vehicle of knowledge flows. We find some support for a positive role for human capital in both countries.