Comparing macroeconomic returns on human and public capital: An empirical analysis of the Portuguese case (1960-2001)

The impact of human and public capital on growth is a major issue in economic theory and in policy evaluation. Using a cointegrated vector autoregression (VAR), we estimate a Cobb-Douglas production function for Portugal with public and human capital. Return rates are then computed with and without dynamic feedbacks. Without these, human capital yields a return comparable to private investment, and smaller than public investment. Considering dynamic feedbacks, private capital responds positively to a shock in public capital, but negatively to a shock in human capital. Consequently, the dynamic feedbacks return on human capital is much lower than on public capital.