Human Capital Composition, Growth and Development in an R&D Endogenous Growth Model

The effect of human capital composition on growth and development has been somewhat neglected in economic literature. However, evidence has suggested the importance of engineering and technical skills to economic growth and international organizations had suggested their shortage in developed countries. Using a standard increasing variety endogenous growth model, we propose various measures of this composition. We show that human capital composition matters to growth and development, that the decentralized equilibrium leads to less investment in high-techs than the optimum and that the tendency to under-invest in R&D is expanded when human capital composition is considered. When compared to data, the model does well in explaining the rate of growth and the level of development (less robustly) as a function of these measures.N/