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Knowledge, Human Capital, Markets and Economic Growth in Modern Economies

Knowledge, Human Capital, Markets and Economic Growth in Modern Economies. June 2, 2005. Beijing, China. China Center for Economic Research. Gary S. Becker University of Chicago. An Investment in Knowledge Pays the Best Interest.

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Knowledge, Human Capital, Markets and Economic Growth in Modern Economies

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  1. Knowledge, Human Capital, Markets and Economic Growth in Modern Economies June 2, 2005 Beijing, China China Center for Economic Research Gary S. Becker University of Chicago

  2. An Investment in Knowledge Pays the Best Interest

  3. Investment in Human Capital as percentage of GDPUnited States - 2001 Schooling 9 - 11% 17 – 25+ Percent On the Job Training 4 – 6% Health 4 – 8% Adult Education ??? Sources: Own calculations based on World Health Organization and, UNESCO, UIS Global Statistics.

  4. Wage Premiums by Education Level United States1963 - 2001 Source: Murphy, Erin S. “How pervasive are the Gains from Schooling.” St. Norbert College, Working Paper, April 2003.

  5. Change in College/High School Wage Gap for European CountriesCohorts Specific Changes Source: Brunello, Giorgio, Simona Comi and Claudio Lucifora. The College Wage Gap in 10 European Countries: Evidence from Two Cohorts. IZA Discussion Papers 228, Institute for the Study of Labor (IZA), 2000.

  6. Returns to Education - China1988, 2002 Sources: 1988: Johnson,Emily N., and Chow, Gregory C. (1997). 2000: Heckman and Li (2003).

  7. Returns to Education - Japan2000 Source: Blondal (2002) .

  8. Returns to English and Schooling by Year- Men Aged 30-55 - India 1980-2000 0.25 English Schooling 0.20 Adjustment for Income Growth in Future: 10% + 4% = 14% 0.15 0.10 0.05 0 1980 1985 1990 1995 2000 Source: Provided by Mark R. Rosenzweig from his own calculations.

  9. Labor Productivity GrowthUnited States1995 – 2005 Source: Bureau of Labor Statistics.

  10. Total Factor Productivity (TFP) in Non-Agriculture United States 1800 – 1940 TFP non-agricultural sector 1800-1840 → 0.79 1840-1900 → 0.73 1900-1929 → 1.63 1929-1940 → 1.78 Source: Greenwood, J., and Seshadri, A. "The U.S. Demographic Transition". AEA Paper and Proceedings, 2002.

  11. Age-Earnings profile for MalesUnited States - 2005 Source: Bureau of Labor Statistics.

  12. Age-Earnings profile for MalesJapan - 2002 Source: Statistics and Information Department Minister's Secretariat. Ministry of Health, Labour and Welfare, Japan.

  13. Economic Gains from Reductions in MortalityUnited States – 1970-1998 Source: Murphy, K.M., and Topel, R. H. The Economic Value of Medical Research. In Measuring the Gains from Medical Research: An Economic Approach, edited by K.M. Murphy and R. H. Topel. Chicago: The University of Chicago Press. 2003.

  14. The Economic Value of Reducing Cancer and Heart Diseases Mortality by 10% for the Total Population in United States Source: Murphy, K.M., and Topel, R. H. 2003. The Economic Value of Medical Research. In Measuring the Gains from Medical Research: An Economic Approach, edited by K. M. Murphy and R.H. Topel, The University of Chicago Press, 2003.

  15. Cross-Country Regression to the Mean in Income per Capita1960-2000 y = 2.1 - 0.13 * x Source: Becker, G. S., Philipson, T., and Soares, R. The Quantity and Quality of Life and the Evolution of World Inequality. American Economic Review, forthcoming.

  16. Cross-Country Regression to the Mean in Full-Income1960-2000 y = 3.4 - 0.26 * x Source: Becker, G. S., Philipson, T., and Soares, R. The Quantity and Quality of Life and the Evolution of World Inequality. American Economic Review, forthcoming.

  17. The Heritage Foundation/Wall Street Journal Index of Economic Freedom2005

  18. Basically China ranks low in the following items: • Trade Policy (but 1 point better than in 2004) • Fiscal Burden (0.3 points better than in 2004) • Foreign investment • Banking and Finance: Four state-owned banks, which have a combined market share of nearly 70 percent, dominate the banking sector. • Property Rights: China's judicial system is weak. The Economist Intelligence Unit reports that "many [foreign firms] prefer arbitration because of concerns about the speed and impartiality of the courts. • Regulation

  19. Japan ranks low in the following items: • Fiscal Burden: In 2003, government expenditures as a share of GDP decreased 0.4 percentage point to 38.3 percent, compared to a 0.6 percentage point increase in 2002. • Banking and Finance: Japan’s banking system, although competitive, suffers from a large number of non-performing loans. Banks often make loans on criteria other than creditworthiness. • Regulation: According to the U.S. Department of Commerce, “Japan’s reputation for protectionism and red tape…is well deserved…. [T]he Japanese economy remains over-regulated and those regulations can be used to hinder foreign firms’ attempts to gain access to the market.”

  20. Conclusions • Human Capital has become increasingly important. • Showed growth in returns to schooling, health. • On the job training also important • Perhaps in midst of technological revolution that will last for decades. • Human capital investment requires flexible economic system to be most productive: Capital markets, labor and product markets.

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