Human Capital in Economic Development: From Labour Productivity to Macroeconomic Impact

Abstract

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Microeconometric evidence reveals high private returns to education, mostprominently in low-income countries. However, it is disputed to what extentthis translates into a macroeconomic impact. This paper projects the increasein human capital from higher education in Malawi and uses a dynamicapplied general equilibrium model to estimate the resulting macroeconomicimpact. This is contingent upon endogenous adjustments, in particular howlabour productivity affects competitiveness and if this in-turn stimulatesexports. Choice among labour market assumptions and trade elasticitiesresults in widely different outcomes. Appraisal of such policies should con-sider not only the impact on human capital stocks, but also adjustments out-side the labour market.