Human Capital and Growth in Japan : Converging to the Steady State in a 1% World

I use a dynamic Solow growth model, augmented with human capital, labor-hours, and oil prices, to show that Japan’s growth in GDP/adult over 1969-2007 can be explained as a process of convergence to a world steady-state rate of 1%/year. I find that each additional year of average schooling attainment during this period raised GDP/adult in Japan by 20 percent, which raised the annual growth rate by 1.8% in 1969, but by only 0.6% in 2007. I also show that redirecting national investment from physical capital to post-secondary schooling would be a cost-effective strategy to raise growth rates