# **1. Introduction**

This study examines the contribution of human capital to economic growth in Guatemala over the past 50 years.<sup>2</sup> The interest is twofold. First, for the country itself there are very few studies that thoroughly analyze past growth patterns, and there are no studies that empirically appraise the direct impact of education on growth. In general, evidence on human capital and growth comes almost entirely from crosscountry analysis. Single-country studies, however, may be more illuminating since they overcome the heterogeneity problem and take into account the unique historical information for each country. Indeed, the original motivation of studying economic growth focuses on the time-series dynamics of macroeconomic variables. Moreover, the cross-section focus may be inadequate if returns to education or the quality of education differ substantially across countries.

Second, this study focuses on the contribution of different levels of education to growth. This is an important aspect regarding the problems associated with measuring _average_ years of schooling. Looking at education in a disaggregated way also proves more fruitful to the policy-maker since it indicates how resources should be divided between different education levels. Finally, the empirical analysis is based on an error-correction methodology, deals with endogeneity, and explores several data construction and robustness issues. All this may be relevant for future case studies as well.

This study, probably for the first time, constructs a reliable data set that accounts for the determinants of long-run growth in Guatemala. In terms of data availability, the country constitutes a most precarious case. Despite these caveats, however, satisfactory and coherent time series data were obtained. The results based on a production function augmented for human capital reveal that a better-educated labor force has a significant positive impact on long-run growth. Consistent with crosscountry evidence, primary and secondary education appear to be most important for productivity growth, followed by tertiary schooling. These findings are in agreement with the micro evidence for Guatemala. Interestingly, the results also suggest that the effect of education in both micro and macro regressions is of similar magnitude.

> 2 This paper was originally prepared as a background study for Guatemala’s 2005 Country Economic Memorandum. I have benefited from discussions with Eduardo Somensatto, Felipe Jaramillo and Andy Mason (World Bank), Hermann Sautter, Stephan Klasen, Dierk Herzer, Michael Grimm and Julian Weisbrod (University of Goettingen) as well as Armando Morales (IMF) and Juan Alberto Fuentes (UNDP). Christian Dreger (Halle Institute for Economic Research), Paul Schreyer (OECD), Oda Schmalwasser (German Federal Statistical Office) and María Concepción Castro (SEGEPLAN) equally deserve many thanks. I particularly want to thank Silvia Villatoro and Estuardo Morán (Banco de Guatemala) for their great assistance in compiling part of the data. The results and opinions presented here are the author only. They do not necessarily reflect the points of view of the people above, and should not be attributed to the institutions the author is affiliated with.

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