HUMAN-CAPITAL, EQUIPMENT INVESTMENT, AND INDUSTRIALIZATION

This paper constructs simple models in which industrialization is driv en by human capital accumulation. Industrialization can explain the ro bust correlation between equipment investment and growth in developing countries. We show that government intervention is justified within o ur stylized model, and indicate that a subsidy to equipment investment is likely to be dominated by other policies. In the final section of the paper, we examine the correlation between equipment investment and growth, and find that it is strongest in economies on the brink of in dustrialization. We also show that this result is not easily explained by diminishing returns. (C) 1998 Elsevier Science B.V. All rights res erved.