<p>If you multiply the index by the population size (or the quantity used to compute the <em>per person</em> index), you get an index of the <strong>stock of human capital.</strong> For example, if for a given country the index is $h_t$ and population is $N_t$, then the stock is:</p>

<p>$$ H_t = h_t \times N_t $$</p>

<p>Now, by the definition a stock follows an accumulation rule, just as physical capital:</p>

<p>$$ H_{t+1} = H_t(1+d_t) + I_t $$</p>

<p>where $d_t$ is the "depreciation" of HK (e.g. because of death or skill obsolescence) and $I_t$ is <strong>gross</strong> investment in HK. Since you probably do not have data on depreciation (which I imagine is very difficult to compute), you can only calculate <strong>net</strong> investment, which is equivalent to net savings by definition:</p>

<p>$$ S^h_t = H_{t+1} - H_t $$</p>

<p>Finally, to compute the savings <strong>rate</strong>, you need to divide this by a measure of GDP. <strong>However, these need to be measured in the same units</strong>. Therefore, you need to transform $H_t$ or $S^h_t$ into <strong>monetary units</strong>. For this you need something like the average price of human capital for every period, which I have never seen, and seems not available in Penn-world tables.</p>

CC BY-SA 3.0
2017-08-03T09:29:42.757Z
Why the downvote?
luchonacho
CC BY-SA 3.0
2017-08-02T10:16:19.263Z
2017-08-02T10:24:31.563Z
2017-08-02T10:24:31.563Z
luchonacho
<p>I am currently undergoing a study on economic growth in 11 countries: Bangladesh, Egypt, Indonesia, Iran, Mexico, Philippines, Pakistan, South Korea, Turkey and Vietnam. I plan to use panel regression. I plan to follow an analysis such as Islam (1995) and Barro (1991) with an augmented Solow model with human capital. </p>

<p>As my human capital variable I am using the "Index of human capital per person" (based on years of schooling and returns to education), from the Penn-world tables. My question is, how would I go about finding the savings ratio $S_h$ i.e. the investment in human capital from the above index?</p>

<economic-growth><human-capital>
Human capital for under developed countries
78282219
# Human capital for under developed countries

(Asked by: username_0 on 2017-08-01)

I am currently undergoing a study on economic growth in 11 countries: Bangladesh, Egypt, Indonesia, Iran, Mexico, Philippines, Pakistan, South Korea, Turkey and Vietnam. I plan to use panel regression. I plan to follow an analysis such as Islam (1995) and Barro (1991) with an augmented Solow model with human capital.

As my human capital variable I am using the "Index of human capital per person" (based on years of schooling and returns to education), from the Penn-world tables. My question is, how would I go about finding the savings ratio $S\_h$ i.e. the investment in human capital from the above index?

**Tags:** economic-growth, human-capital

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## 1 answers

### Answer by username_1 on 2017-08-02. Score: 3

If you multiply the index by the population size (or the quantity used to compute the *per person* index), you get an index of the **stock of human capital.** For example, if for a given country the index is $h\_t$ and population is $N\_t$, then the stock is:

$$ H\_t = h\_t \times N\_t $$

Now, by the definition a stock follows an accumulation rule, just as physical capital:

$$ H\_{t+1} = H\_t(1+d\_t) + I\_t $$

where $d\_t$ is the "depreciation" of HK (e.g. because of death or skill obsolescence) and $I\_t$ is **gross** investment in HK. Since you probably do not have data on depreciation (which I imagine is very difficult to compute), you can only calculate **net** investment, which is equivalent to net savings by definition:

$$ S^h\_t = H\_{t+1} - H\_t $$

Finally, to compute the savings **rate**, you need to divide this by a measure of GDP. **However, these need to be measured in the same units**. Therefore, you need to transform $H\_t$ or $S^h\_t$ into **monetary units**. For this you need something like the average price of human capital for every period, which I have never seen, and seems not available in Penn-world tables.

> **Comments:**
> **username_1**: Why the downvote?  

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