The Knowledge Trap: Human Capital and Development Reconsidered

This paper presents a model where human capital di¤erences may explain several central phenomena in the world economy. Human capital di¤erences emerge via the division of labor, which underpins the quality and quantity of skilled workers. Low quality occurs when skilled workers fail, collectively, to embody advanced knowledge. Traditional human capital accounting is shown to underestimate resulting skill di¤er-ences between rich and poor nations. The theory may explain price, wage and income di¤erences across countries and further suggests novel interpretations of immigrant outcomes, poverty traps, and the brain drain, among other applications