The role of human capital in structural change and growth in an open economy: Innovative and absorptive capacity effects

Abstract

Since the financial crisis in 2008, slow growth has riddled Europe and the COVID‐19 pandemic is amplifying the challenge. Promoting economic growth and transforming to a more knowledge‐based industrial structure will be high on the agenda for the coming decades. We study how more and better human capital can contribute to knowledge accumulation and structural change by means of a dynamic endogenous growth model, with Norway as a numerical case. Human capital has two main roles in productivity growth: to increase the innovative capacity by participating in research and development (R&D), and to increase the absorptive capacity in sectors that trade and can learn from abroad. We find that in a small, open economy, sectors where human capital, R&D and trade interact and enable absorption, tend to grow fastest.

Structural Transformation, Income Inequality and Government Expenditure: Evidence from International Panel Data

“…This social expenditure directly contributes to human-centered development. In the literature of economic development, human development also in turn contributes to economic growth and structural transformation (Bye & Faehn 2022;Fleisher et al 2010;Siddiqui & Rehman 2017). Numerous papers also suggest the inequality-reducing effects of human capital (Abrigo et al 2018;Sehrawat & Singh 2019).…”

Natural resources and economic growth: evidence from Brunei Darussalam

“…There is consensus in the literature about the positive and significant relationship between human capital and economic growth. Bye and Faehn (2021) highlighted the role of human capital and argued that it enhances innovative capacity through R&D expenditure and further accelerates the absorptive capacity of sectors of the economy. Both innovative and absorptive capacities are key ingredients of higher economic growth.…”

Talent management practices for firms’ absorptive capacity in a host country: a study of the Chinese diaspora in Russia

“…The dynamic capability concept is studied at both firm and individual levels. Thus, employees, especially with high human capital, serve as an essential source to enhance firms' capacities (Bye and Faehn, 2022). It is important to explore this individual, as it creates the micro-level mechanisms of knowledge sharing (Foss and Pedersen, 2019).…”

“…Human capital plays a key role in firms’ productivity by increasing absorptive capacity (AC; Bye and Fæhn, 2022). The role of foreign diasporas is widely discussed as their human, social and financial capital contributes to the political, social, demographic and economic development of their countries of residence and homeland (Estrin et al , 2018; IOM GMDAC, 2020; Panibratov and Rysakova, 2020).…”

“…AC as the essential organizational capability to recognize the value of new external knowledge plays a crucial role in overcoming institutional challenges and enables firms to creatively apply and use the external information (Aguiar and Gagnepain, 2022; Lane et al , 2006; Limaj et al , 2016) that contributes to the sustainability of organizations (Kale et al , 2019). Thus, knowledge sharing among different groups of employees within a firm becomes an important condition of organizational success (Bye and Fæhn, 2022; Foss and Pedersen, 2019). A talented foreign workforce plays an essential role by providing knowledge transfer and enhancing firms’ capabilities.…”