Threshold effects of human capital: Schooling and economic growth

- A dynamic panel threshold model is used to test non-linear effect of human capital.
- Capital stock per capita, a proxy for development, is used as the threshold variable.
- Positive effect on schooling can be realized after a threshold level of development.

Empirical growth studies have often found average years of schooling to be unrelated with economic growth. This note shows that the significant positive effect of schooling can only be realized after an economy crosses a threshold level of development.