A reevaluation of the effect of human capital accumulation on economic growth using natural disasters as an instrument

Theoretic growth models and microeconomic evidence suggest that human capital accumulation is an important determinant of per capita income growth. However, early macroeconomic studies found a weak relationship between growth and human capital accumulation. While recent studies addressing outliers, measurement errors, and specification error are beginning to show larger positive effects, human capital endogeneity has received little attention. This article suggests that endogeneity is significant and finds that natural disasters are a good instrument for changes in schooling. Our resulting instrumental variable estimates are larger than our OLS estimates and are generally larger than those in previous studies. © 2010 EEA.