E. Gundlach, ACCOUNTING FOR THE STOCK OF HUMAN-CAPITAL - SELECTED EVIDENCE AND POTENTIAL IMPLICATIONS, Weltwirtschaftliches Archiv, 130(2), 1994, pp. 350-374
Given the observed distribution of output and labor across countries,
most capital flows should be from rich to poor countries. As is shown
for a limited sample of countries, accounting for differences in the s
tock of human capital substantially reduces the implicit cross-country
rate of return differentials. Additionally, accounting for human capi
tal externalities based on independent empirical evidence, turns aroun
d the predicted rate of return differentials in favor of rich countrie
s. Hence, the world economy may converge to a rather unequal distribut
ion of incomes as long as human capital accumulation is neglected as t
he key variable limiting economic development.