Estimating the Uzawa-Lucas Model for the U.S. and Germany

Numerous cross-sectional tests have been performed to evaluate the predictions of recent growth theories such as the Uzawa-Lucas growth model. In a series of papers and in his book, Jones (1995a, 1995b, 1997) has shifted the attention toward the time series predictions of endogenous growth models. By contrasting endogenous growth models with facts, one is frequently confronted with the prediction that levels of economic variables, such as education or human capital, imply lasting e ects on the growth rate of an economy. As stylized facts show, measures of education or human capital in most advanced countries have dramatically increased, mostly more than the GDP. Yet, the growth rates have roughly remained constant or even declined. In this paper we modify the growth e ects of education and human capital in our variant of the Uzawa-Lucas growth models and test the model using time series data for the U.S. and Germany from 1962.1 to 1996.4. We consider two versions: In the rst, we treat the time spent for education as exogenously given and neglect the external e ect of human capital. In the second version, the time spent for education is an endogenous variable and the external e ect of human capital is taken into account. Our results demonstrate that the model is compatible with the time series for aggregate data in those countries. All parameters fall into a reasonable range. We would like to thank Jens Rubart and Almuth Scholl for research assistance. Center for Empirical Macroeconomics, University of Bielefeld, 33501 Bielefeld, Germany University of Bielefeld, 33501 Bielefeld, Germany, e-mail: [email protected] Center for Empirical Macroeconomics, University of Bielefeld, 33501 Bielefeld, Germany and New School University, New York.