Higher or Basic Education? The Composition of Human Capital and Economic Development

No country has achieved sustained economic development without investment in education. But do all types of human capital affect growth identically? And which types of schooling—secondary or tertiary—should public policy promote? This paper develops an analytical framework to address these questions. It shows how the composition of human capital stock determines a country’s development. Hence, promoting the “wrong ” type of schooling can have little effect on development. In addition, the paper helps in understanding why empirical studies have failed to find a significant relationship between schooling and growth. [JEL O11, O41, I20] No country has achieved sustained economic development without substantialinvestment in human capital. Motivated in part by this observation, an ex-tensive theoretical literature has evolved to analyze the channels through which human capital can affect growth (surveys include Barro and Sala-i-Martin, 1995; and Temple, 1999). Much of this literature has emphasized the complementary relationship between human and physical capital, noting how imbalances in these two stocks, as well as human capital externalities, can affect economic growth. However, because human capital is typically treated as a homogeneous concept, very little is understood about how different types of education—tertiary, second-ary, and so forth—shape the overall development process