Human Capital Composition , R & D and the Increasing Role of Services ∗

A growth model with endogenous innovation and accumulation of high-tech and lowtech human capital is developed. The model accounts for a recently established fact about human capital composition, which stated that “the richest countries are investing proportionally less than middle income countries in engineering and technical human capital”, due to the consideration of a negative effect of technological development on the accumulation of high-tech human capital. Under this new and reasonable assumption, our model also accounts for other previously established stylized facts. Both the evolution of human capital composition and the transition across stages of development are endogenously determined. We relate an increasing R&D activity and a negative relationship between income and the ratio of high to low-tech human capital, both present in developed countries, to the transition to a services economy. Although all growth rates are optimal, we observe under-allocation of high-tech human capital to industry. JEL Classification: O11, O14, O15, O31, O33. Key-Words: human capital composition, high-tech human capital, R&D, Development, structural transition. ∗We are grateful to José Tavares, to António Antunes and to participants at the Informal Research Workshop at the Quantitative Economics Doctorate meeting and at the Annual Spie Meeting, held at Faculdade de Economia (UNL) during 2003, for many comments and suggestions and to John Huffstot for text revision. Tiago Neves Sequeira is also grateful to the Fundação para a Ciência e Tecnologia for financial support during the second year of his PhD program (PRAXIS XXI / BD / 21485 / 99). The usual disclaimer applies. †Faculdade de Economia, Universidade Nova de Lisboa. ‡Faculdade de Economia, Universidade Nova de Lisboa and Departamento de Gestão e Economia, Universidade da Beira Interior. (e-mail : [email protected]).