Abstract:
This paper demonstrates that considering alternative means of human capital accumulation, such as
learning-by-doing, overturns the presumption that formal education is unconditionally beneficial for
economic growth. It analyzes a model in which the average level of human capital creates externalities
in future human capital accumulation and individuals can augment their human capital with work
experience or education. The model shows that in the early stages of development, education
enhances growth by creating a positive externality, and, in later stages, it may depress growth by
leading to a negative externality. It also demonstrates the possibility of multiple equilibria in which
low-income equilibria are characterized by under-education and high-income equilibria are
characterized by over-education.
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