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Statistics for Economics and Business
Coursebook
Task ‘Human capital and economic growth’
Background
King Arthur and the knights of the round table searched for the holy grail. Long after the
mystic island Avalon immersed in the floods, Solow and the neo-classical economists entered
the quest for long-run economic growth. If we only understood the determinants of long-run
economic growth — the story goes — we could implement policies to foster wealth across all
nations. Your task it to contribute to that noble endeavor.
Assume wealth is a social product, i.e. the outcome of the joint effort of all individuals in a
society. How could we increase wealth? Well, probably the simplest way would be to increase
the society — double the number of people and everything else, and you double the output. But
that doesn’t make anybody richer because the doubled output is going to serve twice as many
people.
Thus, in order to grow the wealth of each individual in the society, something needs to grow
that helps the members of that society to achieve their goals. The general term for such a
thing in economics is capital. At the beginning the focus was very much on physical capital,
i.e. installed machinery, and how these improve over time due to technical progress. Only later,
human capital as an important productive factor has been emphasized, with schooling being
one important input to human capital.
Task
If we would increase years of schooling by one year, how would that affect economic
growth?
Investigate this question by doing a statistical analysis using R in groups of 2 students (and
at most one group of three students). Groups will be assigned randomly, no choice. However,
please alarm us if something does not work well in your group (e.g. if you feel exploited).
Your analysis should include descriptive statistics of the most relevant variables and a linear
model estimated with OLS. The output which is going to be evaluated is a report submitted
by each group, as well as the contribution of individual students in discussions prior and post
submission of reports. The report should NOT EXCEED 10 pages (standard formatting, Arial,
11pt, including graphs, tables, and references).
1
Reports are due until the session 25 of October where you present your findings. The report
should be send in digital form to [email protected] and [email protected] (as pdf named
‘econgrowth Surname1 Surname2.pdf’ with subject ‘IEM L3 final report’) and one print out
should be provided at the session 25 of October.
The data set provided for the analysis is panel data compiled from several sources: population
data comes from the United Nations (2015), henceforth UN, the schooling attainment data
is from (Barro and Lee, 2013), henceforth Barro-Lee, and economic data from the Penn World
Tables (Feenstra et al., 2013), henceforth Penn-World-Tables. The data set covers 125 countries
over 17 five-year periods and provides the following variables:
Variable name Description Source
isocode iso country abbreviation –
year year of measurement –
country name of country –
region2 some ‘world-region’ Barro-Lee
workpop population between 20 and 64 years old in 1000 UN
unpop.x population total in 1000 UN
yr sch average years of schooling for 15 to 99 years Barro-Lee
rgdpo output-side real GDP Penn-World-Tables
at current PPPs in Mio 2005 US$
ck physical capital per worker
at current PPPs in Mio 2005 US$ Penn-World-Tables
