International TFP dynamics and human capital stocks: a panel data analysis, 1960-2003

This paper adopts fixed-effect panel methodologies to obtain TFP values for a sample of 76 countries from 1960 through 2003. Our results are robust to the use of different estimators (LSDV, Kiviet-corrected LSDV, and GMM). They show that TFP dynamics are characterized by a process of conditional convergence where most countries do not catch up with the U.S., and where human capital plays an important role in technology adoption, as suggested by Nelson and Phelps in 1966. Such a role is robust to the inclusion of controls for the quality of institutions in a country. Further, our results imply a plausible link between stages of development and returns to different levels of education. Finally, we calculate the minimum human capital level necessary to generate catch-up and find that virtually all countries are above that level-a result that again emphasizes the importance of human capital in technology diffusion.