In this paper, we test whether the growth experience of a sample of OECD countries over the past three decades
is more consistent with the human-capital augmented Solow model of exogenous growth, or with an endogenous
growth model à la Uzawa-Lucas with constant returns to scale to “broad” (human and physical) capital. We exploit
the different non-linear restrictions implied by these two models to discriminate between them. Using pooled crosscountry
time-series data, we specify our growth regression by imposing cross-country homogeneity restrictions only
on long-run coefficients, while letting the speed of convergence and short term dynamics to vary across countries.
While there are indeed good reasons to believe in common long-run coefficients, given that OECD countries have
access to common technologies and have intensive intra-industry trade and foreign direct investment, the theoretical
models imply that the speed of convergence to the steady state differs across countries because of cross-country
heterogeneity in population growth, technical change and progressiveness of the income tax. Therefore, standard
dynamic fixed effect specifications, by imposing cross-country homogeneity restrictions on speed of convergence and
short-run parameters, suffer from a heterogeneity bias and are not suited to implement our tests. The results suggest a
strong effect of human capital accumulation: the estimated long-run effect on output of one additional year of
education (about 6-9%) is also within the range of the estimates obtained in microeconomic analyses of the private
returns to schooling. Our estimated speed of convergence is too fast to be compatible with the augmented Solow
model, while is consistent with the Uzawa-Lucas model with constant returns to scale. This main finding is robust to
several robustness tests.
