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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Last update: July 19, 2001