In this dissertation I discuss how the allocation of human capital, in the form of education, across groups and sectors impacts economic development. Particularly, in Chapter 2, I provide evidence that improvements in life expectancy achieved along the 20th century impeded countries from moving toward more market-oriented labor regulations. First, using declines in predicted mortality from medical advances in the 1940s and 1950s as an instrument for improvements in life expectancy, the chapter shows that improvements in health cause an decrease in the share of the skilled labor force. These low-skilled workers increase the political support for labor regulation since they can bargain for higher wages when the cost of worker replacement is higher. Cross-country data shows that countries with a larger share of low-skilled workers failed to make their labor regulation more flexible. Lastly, I show that health improvements in the 1940s and 1950s have a positive long-run effect on the index of labor regulation.In Chapter 3, exploiting heterogeneity across Brazilian micro-regions over the 1970-2000 period, Parente, Rios-Neto and I examine whether the demographic dividend extends beyond a pure accounting effect. Using a Sys-GMM approach, we find evidence that changes in age structure have only pure accounting effects after controlling for human capital. Therefore, in the case of Brazilian micro-regions, there is a second demographic dividend, which is associated with education. This second dividend is the far more important of the two dividends in terms of economic growth. In a counterfactual exercise, we show that the accounting effect is responsible for less that 10% of the income gap between the poorest and richest regions in Brazil.In Chapter 4, I show that large governments hinder economic development by reducing competition in the private sector. The model features a public sector that uses human capital to provide public goods that reduce costs in the private sector, increasing competition. However, large governments reduce market competition by reducing the supply of human capital in the private sector. The model produces the empirical finding that government size has an inverted-U relationship with economic growth. The model also stresses the importance of public sector productivity. Using data from European countries, a calibrated version of the model shows that the average gap in income to the US in 30 years would be 87% instead of 74% if all countries in the sample had the same public sector productivity of Finland, the country with highest public efficiency.
PDF
download
878987797
028-85220240
