Human Capital and the Wealth of Nations

No question has perhaps attracted as much attention in the economics liter-ature as “Why are some countries richer than others? ” In this paper, we revisit the development problem. Contrary to recent work, we find that only relatively small (of at most 27%) differences in Total Factor Productivity (TFP) are re-quired to explain the large differences in output per worker. We estimate the (long-run) elasticity of output with respect to TFP to be around 8, and we find a substantial impact associated with (exogenous) changes in life expectancy and fertility. The key difference between our model and recent work in this area is that we use theory to estimate the stocks of human capital, and we allow the quality of human capital to vary across countries. We find that the cross-country differences in average human capital stocks are large