HUMAN CAPITAL, EQUIPMENT INVESTMENT, AND INDUSTRIALIZATION

 

Jonathan Temple

Nuffield College

and

Hans-Joachim Voth

Clare College, Cambridge

 

July 3, 1996

 

Abstract

This paper constructs simple models in which industrialisation is driven by human capital accumulation. Industrialization can explain the robust correlation between equipment investment and growth in developing countries. We show that government intervention is justified within our 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 industrialization. We also show that this result is not easily explained by diminishing returns.