Testing the Technology of Human Capital Production: A General‐to‐Restricted Framework. (25th June 2020)

• Record Type: Journal Article
• Authors: Jones, Sam
• Is Part Of: Oxford bulletin of economics and statistics. Volume 82:Number 6(2020)
• Page Start: 1429
• Page End: 1455
• Publication Date: 2020-06-25
• Subjects: Economic history -- Periodicals; Great Britain -- Economic conditions -- Periodicals; 330.9
• DOI: 10.1111/obes.12374
• Languages: English
• ISSNs: 0305-9049

Abstract

Abstract: Studies of childhood development have suggested human capital is accumulated in complex and nonlinear ways. Nonetheless, empirical analyses of this process often impose a linear functional form. This paper investigates which technology assumptions matter in quantitative models of human capital production. I propose a general‐to‐restricted procedure to test the production technology, placing constraints on a modified McCarthy function, from which transcendental, constant elasticity of substitution, log‐linear and linear models are obtained as special cases. Applying the procedure to data on child height from the Young Lives surveys, as well as cognitive skills, I find that the technology of human capital production is neither log‐linear nor linear‐in‐parameters; rather, past and present inputs act as complements. I recommend that maintained hypotheses underlying functional form choices should be tested on a routine basis.