Human Capital and Regional Development

Authors: Nicola Gennaioli, Rafael La Porta, Florencio Lopez-de-Silanes and Andrei Shleifer

Quarterly Journal of Economics, Vol. 128, No 1, 105--164, January, 2012

We investigate the determinants of regional development using a newly constructed database of 1,569 subnational regions from 110 countries covering 74% of the world's surface and 97% of its GDP. We combine the cross-regional analysis of geographic, institutional, cultural, and human capital determinants of regional development with an examination of productivity in several thousand establishments located in these regions. To organize the discussion, we present a new model of regional development that introduces into a standard migration framework elements of both the Lucas (1978) model of the allocation of talent between entrepreneurship and work, and the Lucas (1988) model of human capital externalities. The evidence points to the paramount importance of human capital in accounting for regional differences in development, but also suggests from model estimation and calibration that entrepreneurial inputs and possibly human capital externalities help understand the data

This paper originally appeared as Barcelona GSE Working Paper 581