Imported Equipment, Human Capital and Economic Growth in Developing Countries

That both equipment investment and human capital affect growth in developing countries is a well established fact in the empirical growth literature. Few studies have asked to what extent human capital and equipment investment are complements, with human capital affecting the ability of developing economies to make use of investment in capital goods. We study the effect of equipment investment on the growth of developing countries and the interrelationship between such investment and human capital. We find a complex interrelationship between equipment investment and human capital. Generally, the relationship between equipment investment and growth is lowest, and often negative, for countries with low levels of human capital, highest for countries within an intermediate range and somewhat in between for countries with the highest level of human capital.