Human Capital Composition and Economic Growth at a Regional Level

Abstract

With this paper we build a two-region model where both innovation and imitation are performed. In particular imitation takes the form of technological spillovers that lagging regions may exploit given certain human capital conditions. We show how the high skill content of each region’s workforce (rather than the average human capital stock) is crucial to determine convergence towards the income level of the leader region and to exploit the technological spillovers coming from the frontier. The same applies to bureaucratic/institutional quality which are conductive to higher growth in the long run. We test successfully our theoretical result over Spanish regions for the period between 1960 and 1997. We exploit system GMM estimators which allow us to correctly deal with endogeneity problems and small sample bias.