Human Capital Accumulation Across Space

Abstract

This paper studies how human capital shapes the economic geography of development. We develop a model in which the cost of acquiring human capital varies across space, and regions with higher human capital invest more in human-capital-augmenting technology. Locations are interconnected through costly migration and trade. Using data on local income and schooling, we quantify the model at a 1◦ × 1◦ resolution globally. Over two centuries, the model mostly predicts persistence in the spatial distribution of development. Proportionally lowering education costs in sub-Saharan Africa raises local outcomes but lowers global welfare, while the same policy in Latin America improves global welfare. An alternative policy that equalizes educational costs across sub-Saharan Africa generates relatively worse outcomes, as population shifts within the region toward less productive areas. These results are driven by the estimated negative correlation between education costs and local fundamentals, as well as inefficiencies in the spatial allocation due to externalities.

Link to paper.