Long-Run Growth and Physical Capital-Human Capital Concentration

This paper aims to explore physical capital (K) and human capital (H) absorption and diffusion effects on the long term economic growth where the early studies started with T.W. Schultz and G.S. Becker. Within the proposed hypothesis three alternative models will be tested for forty five developed and developing countries. The hypothesis also likes to explore whether above mentioned criteria’s also can explain why on the overall developed countries has a relatively lower long-run economic growth rate vs. developing countries. In our first model, time series data for 1960-1990 for the selected forty five countries statistically verifies that the ratio of slopes (Per unit change in K and H) is high for the developed countries and small for the developing countries. In the second model growth (g) is related to kt-1 (capital concentration with respect to human capital = Kt-1/Ht-1). Empirical results show that an increase in kt-1 leads to statistically significant lower growth rates for all countries. Third model tests average growth rates of developed and developing countries at a cross-sectional level for k (average capital concentration with respect to human capital = the slope of K trend / the slope of H trend). Similar findings have been reached confirming our hypothesis