What role for human capital in the growth process: new evidence from endogenous latent factor panel quantile regressions

Abstract

The estimates for the human capital effect in cross-country growth regressions have been subject of considerable controversy. We argue that human capital is intrinsically a multidimensional construct. We construct human capital measure by combining available alternative proxies via confirmatory factor analysis. Using panel data endogenous quantile regression methods we analyse the whole conditional growth distribution by simultaneously accounting for the potential endogeneity of human capital and country specific effects. Our results conform to theoretical expectations and we are able to demonstrate the beneficial effect of both the measurement approach and the endogeneity correction on the derivation of theoretically consistent estimates.