Experience Matters: Human Capital and Development Accounting
The current consensus in the development accounting literature is that differences in aggregate human and physical capital stocks across countries account for less than half of cross-country income differences. This literature has found that taking human capital from experience into account does not change the explanatory power of human capital. In this paper, we document a new fact that suggests a different conclusion. We find that experience-wage profiles are flatter in poorer countries than in richer countries. Taking this into account substantially increases the contribution of human and physical capital in development accounting.
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This paper was revised on November 25, 2013