The Knowledge Trap: Human Capital and Development Reconsidered", NBER Working Paper #14138

This paper presents a model where human capital differences, rather than technology differences, can explain several central phenomena in the world econ-omy. The results follow from the educational choices of workers, who decide (a) how broadly and (b) how much to train, given the decisions of other workers. A "knowledge trap " occurs in economies where skilled workers favor broad but shal-low knowledge. This simple idea can inform cross-country income differences, international trade patterns, poverty traps, and price and wage differences across countries in a manner broadly consistent with existing empirical evidence. Novel evidence from immigrant labor market outcomes provides further support. The model also provides insights about the brain drain and migration, and suggests an intriguing role for multinationals in assisting development. This paper shows more generally how standard human capital accounting methods can severely underestimate the role of education in development. It shows how endogenous educational decisions can replace exogenous technology differences in a range of economic reasoning