Fakultätskollo­quium - Human Capital Externalities, Growth and Welfare

Abstract: To better understand the quantitative implications of human capital externalities at the aggregate level, this paper estimates a two-sector endogenous growth model with knowledge spill-overs. To this end, we first develop an econometric method to estimate the model's endogenous trend growth rate. This involves the application of a multi-move Gibbs sampling algorithm to sequentially remove the endogenous common trend from the data and estimate the model's posterior parameter distributions. We next apply this method to post-war U.S. data and find significant positive externalities to human capital. We further find that eliminating this market failure leads to substantial increases in education time, endogenous growth and aggregate welfare.