The efficiency of human capital allocations in developing countries

Dietrich Vollrath

Journal of Development Economics, 2014, vol. 108, issue C, 106-118

Abstract: For a set of 14 developing countries I evaluate whether differences in wage gaps between sectors – estimated from individual-level wage data – have meaningful effects on aggregate productivity. Under the most generous assumptions regarding the homogeneity of human capital, my analysis shows that eliminating wedges between wages in different sectors leads to gains in output of less than 5% for most countries. These estimated gains of reallocation represent an upper bound as some of the observed differences in wages are due to unmeasured human capital. Under reasonable assumptions on the amount of unmeasured human capital the gains from reallocation fall well below 3%. Compared to similar estimates made using data from the U.S., developing countries would gain more from a reallocation of human capital, but the differences are too small to account for a meaningful portion of the gap in income per capita with the United States.

Keywords: Misallocation; Human capital; Aggregate productivity; Structural transformation; Wage differentials (search for similar items in EconPapers)
JEL-codes: J31 O12 O15 O47 O57 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S030438781400011X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:108:y:2014:i:c:p:106-118

DOI: 10.1016/j.jdeveco.2014.01.009

Access Statistics for this article

Journal of Development Economics is currently edited by M. R. Rosenzweig

More articles in Journal of Development Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().