The Human Capital Augmented Solow Model

This video contains a description of a basic human capital augmented Solow model that is then used to explain cross-country income differences. The model performs better - from a quantitative perspective - than the Solow model without human capital. While differences in saving rates and differences in education together can already explain income differences between low-income and high-income countries of a factor of six, the empirically observable differences are a factor of 30 and higher. The remaining difference can be explained by productivity (technology and efficiency) as we will see in a later video.



In the second part of the video, I present the Mankiw-Romer-Weil model that also allows for the accumulation of human capital (for the sake of simplicity, this is ruled out in the first part of the video). I derive the fundamental equation of the Mankiw-Romer-Weil model and discuss its implications for the implied speed of convergence. The implied speed of convergence of the model is in the range of plausible values found in empirical studies on the rate of convergence.