[ HL UO U R MA LO ] '

DEVELOPING AREAS

Does Urbanization Foster Human Capital Accum ulation?

Author(s): Luisito B ertin elli and B enteng Zou
Source: The J o u rn a l o f D evelopin g Areas, Vol. 41, No. 2 (Spring, 2008), pp. 171-184
Published by: College o f Business, Tennessee State U n iv ersity
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 DOES URBANIZATION FOSTER HUMAN
CAPITAL ACCUMULATION?*

Luisito Bertinelli
Benteng Zou
CREA University of Luxembourg, Luxembourg

ABSTRACT

The literature on growth theory has pointed to the importance of human capital in order to explain
the process of economic development. In the present study, we highlight the role played by cities in
fostering human capital accumulation. More particularly, building on a simple urban economics
model, we perform cross-country estimations, measuring the relation between human capital
accumulation and urbanization. Our results support the result according to which more urbanization
induces higher rates of human capital accumulation, but only above a certain threshold level of
development. This latter result raises policy concerns on issues related to over-urbanization.

Keywords: urbanization, human capital accumulation, cross-country dynamic panel data

estimations
JEL classifications: 018, RIO
Corresponding Author’s Email Address: luisito.bertinelli@uni.lu

INTRODUCTION

The recent growth literature has emphasized the importance of education and
human capital accumulation in the process of economic growth and development
(Temple, 1999). Human capital being unequally distributed across countries, parts of the
inequalities that persist worldwide may come from differential educational attainments.
In particular, it is a well documented fact that urban areas have higher average levels of
and higher returns to education. There may be numerous reasons why cities should be
more prone to higher educational attainments. These can be the presence of local human
capital externalities resulting from interactions among economic agents, a better skill
matching between workers and firms, or any other mechanism that fosters learning in
cities. In the present study, we will focus on the assessment of the overall contribution of
urbanization on human capital accumulation rather then relying on micro-level
mechanisms.1 To achieve this aim, we develop a simple urban economics model, where
urban dwellers invest in human capital and we run country-level macro regressions,
quantifying the impact of urbanization on human capital accumulation.
The downturn of working on cross-country data comes from the aggregation
problem. As already stated, a large number of microeconomic mechanisms are
compatible with a given macroeconomic finding. Economists refer to the degeneracy of
macroeconomic state to term this issue in theoretical models. However, macro-level
estimations are fundamental when one is interested in quantifying the overall effects of a
variable of interest on the general development level of the economy. In the seminal work
of Lucas (1988), urbanization is an essential mechanism for human capital externalities to
appear, and thus, to foster endogenous growth. As put by Henderson (2005), cities
enhance knowledge spillovers. At the microeconomic level, there is ample evidence

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 172
according to which living in cities increases individuals’ incomes (Moretti (2004),
Ciccone and Peri (2006)), as private returns to education differ from social returns at the
local level. Thus, returns to education will be higher in urban areas, as average
educational attainments will be.
In our empirical results, two essential features emerge. First, it turns out that
urbanization is a robust determinant of human capital accumulation, even after
controlling for other potential variables that could be correlated with urbanization.
Second, urbanization acts non-linearly on education, with a minimum threshold level at
about 40 per cent, below which urbanization actually deters incentives to invest in
education. The rest of the paper is organizedas follows. In section 2, we present a very
simple model leading to an equation linking human capital and urbanization. Data and
empirical estimations are displayed in section 3. Section 4 concludes.

THE MODEL

Let us start with a simple urban economics model, based on Bertinelli and Black (2004),
where urban dwellers invest in human capital in order to increase their private income,
but benefits from their investment will spread all over the economy through technology
diffusion. Gross earnings received by a worker i who chooses to locate in the urban
location are

where Gu represents the quality of public infrastructure at the urban level and other
productivity advantages it may possess, At is the current level of technology, and hit is the
amount of human capital of individual /, which can be obtained through a per unit level
o f effort P<0. Function / is supposed to be increasing in all its elements. The urban
residents’ earnings net of educational effort and congestion are then:

0)

where 0<z<l is the proportion of the population that locates in urban areas, N is total
population, P is a per unit level of effort that each individual has to pay in order to
acquire human capital, and q () measures the time invested in human capital. The fact that
we use q(hit) rather than simply hit expresses that as individuals accumulate knowledge, it
follows that less time or effort is expended on gathering further knowledge. This is the
so-called learning curve, first quantified in the aircraft industry (Wright, 1936). Finally
g(.) is a decreasing functions of urban population. Thus, g(z-N) captures urban external
diseconomies.
Urban workers will maximize their income l ut in order to decide upon their human
capital investment. Maximizing equation (1), we trivially end up w ith+a first order
condition stating that the equilibrium level of human capital investment hjt is such that
marginal returns to education equate marginal costs

(2 )

Though the choice of hit will have an impact on the equilibrium value of urban
population, individual workers do not perceive the impact of their investment and
location decisions on city size as they do not perceive their contribution to congestion
when migrating to cities.

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 173
City size will however indirectly impact on human capital investment decision through
the technology term At. More precisely, the equation of motion of technology is given by2

4 = « ( v r V i) 0)

where a is an increasing function of human capital. Replacing (3) into (2) and rearranging
terms, we get

[G uA 2 ,-i • = P (4)
1 *
which gives us an implicit formulation of the human capital path, where nit will depend
on past levels of human capital and on past levels of urban population share. In order to
filter out the effect of past levels of urbanization on human capital, that is hit(zt.i)9 we
take the total derivative on both sides of (4) with respect to zt.h

;/>zm p J ' _j_ r"

r(dhit ^ A,a,
where f t denotes the derivative with respect to variable i.
From (5), we see that the effect of z,_; on human capital accumulation is
ambiguous, and will in particular depend on the effect of f hi ^ , q \ , and the mixed
effect f h n ( y Stated differently, the interrelation between the sHape or fhe learning curve
and the elret of the level of urbanization on returns to human capital will determine the
impact of urbanization on human capital accumulation. For instance, if we hypothesize
that f t and q are convex, i.e there is a learning curve and returns to human capital
augment at an increasing rate, than the impact of urbanization on human capital
accumulation will crucially depend on whether higher levels of urbanization have indeed
a deterrent effect on returns to human capital. More plausibly, one may expect that that
there are non-monotonic effects at work, such that urbanization will be fostering human
capital accumulation only up to a certain level of development. This would for instance
be the case if we suppose that the learning curve follows a logistic pattern. In order to
assess empirically the impact of urbanization on human capital accumulation, we will
rely on a reduced version of (5) to estimate this relationship.

EMPIRICAL FRAM EW ORK

In the empirical part, we are going to determine whether (i) urbanization is an

engine of human capital accumulation, and (ii), how the relationship between human
capital and urbanization behaves.

Specification and Econometric Issues

In the preceeding section, equation (5) of the model points to an ambiguous

relationship between urbanization and human capital accumulation. In this section, we
will rely on a reduced-form of this equation in order to disentangle the theoretical
indeterminancy on the sign of the human capital - urbanization relationship. An issue we
are confronted with when running cross-country regressions is country-specific
heterogeneity. To address this issue, we introduce fixed effects in our estimations, hence

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 174
allowing time-invariant omitted variables to have differential impacts across different
countries. Our basic specification is given by:

In h u m a n c a p i t a l \ = a + p { h u m a n c a p ita l
'------------- v------------- ' «------------- „---------- ^
NTx 1 NTx\

+ d {u rb a n iz a tio n )j t _A
' ' (6)
+ (c o n tro ls), t_) ■ y
v,_________ _________ j Hr1
NT x K Kx]

+ Mi + 77, + 8 u

where (X , P and y are scalars, /Lli and T]t are country and period-specific effects
respectively, and e it is an i.i.d. error term.
Using fixed effect estimators may however be unsatisfactory with regards to issues of
endogeneity o f the human capital variable. Although fixed effects results are reported in
our results, the coefficients are plagued by endogeneity as the lagged human capital
variable on the RHS of (6) is by construction correlated with the error term. Following
Arellano and Bond (1991), we thus wipe out fixed effects by first differencing
specification (6) and then instrumenting the RHS endogenous variables with their lagged
levels and estimating the overidentified system via GMM. Estimations are run on
differenced series and the number of instruments is generally limited to two periods in
order to avoid overfitting biases. Except for time dummies, all explanatory variables are
instrumented.

Data and Basic Statistics

Our data is based on country level observations, and ranges from 1960 to 1990
by 5-year periods. Our main focus will be data on urban population (stemming from the
UN World Urbanization Prospects) and levels of human capital (as proxied by the
average years of secondary and higher education of the population aged 25 and more; the
source is from the Barro and Lee (1993) data set). Further details are provided in the data
source appendix. Table 1 provides some summary statistics. Accordingly, urbanization
has increased by about 14 percentage points, whereas human capital as well as
GDP/capita have more than doubled (166 per cent respectively 122 per cent) during the
1960-90 period.3 However there are large variations in our sample. In particular, as can
be expected, countries with low initial levels of urbanization (i.e. less than 30 per cent),
increased urban population most (47 per cent), whereas intermediate (between 30 and 60
per cent) and high (more than 60 per cent) urbanized countries have seen their
urbanization rates increase less (9 respectively 3 per cent).
Relating both urbanization and human capital, we obtain correlation coefficients
between 0.66 and 0.70 according to the period. A result worth mentioning appears also
when correlating human capital to present and past values of urbanization (see Table 2).4
This very rough measure of the relation between our two variables of interest hints to
some non negligible comovement, with some persistence in time.

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 175
TABLE 1 SUMMARY STATISTICS
urbanization education (years) GDP/capita
1960 0.39 0.62 2477
1975 0.47 0.99 3985
1990 0.53 1.65 5490
Min 0.017 0.01 313
Max 1 6.22 20018

TABLE 2 CORRELATIONS BETW EEN URBANIZATION AND HUMAN

CAPITAL
human capital
1960 1970 1980 1990
urbanization(t) 0.67 0.66 0.67 0.71
urbanization(t-5) 0.67 0.69 0.72
urbanization(t-lO) 0.68 0.70 0.73
urbanization(t-15) 0.70 0.74

Basic Results

In the sequel, interpretations will be based on Arrelano and Bond (1991)’s two-
step heteroskadasticity consistent GMM estimator. Results for fixed effects are also
provided for the interested reader. The assumptions on no serial correlation in the error
term are tested and hold for all our estimations: there is significant first order correlation
and no evidence of second order serial correlation, thus the disturbances are serially
uncorrelated. In the first and fifth columns of Table 3, basic specification results are
reproduced, where only the base period dependent variable as well as time dummies have
been added as RHS explanatory variables. In a growth type interpretation, we can note
that there is convergence between the average levels of human capital. This is consistent
with raw data results highlighting that the bulk of the 30 least educated countries had an
annual human capital growth rate of about 4.9 per cent between 1960 and 1990, whereas
for the 30 most educated, this rate has been about 2.6 per cent. Moreover, GMM
estimates point to slightly smaller speeds of convergence. This is a common result when
working with dynamic panels. Whereas OLS levels estimates of /? tend to be upward
biased, fixed effects estimates are downward biased (Bond et al., 2001). The
introduction of the urbanization variable hints to a faster rate of convergence. More
importantly, the presence of a larger number of city dwellers seems to favor human
capital accumulation: coefficients are always positive and highly significant, and even
more so when accounting for possible endogeneity, supporting Glaeser and Mare
(2001)’s statement: “The evidence suggest that cities speed the accumulation of human
capital” (p.316). This is true, even after controlling for general levels of development, as
is done in columns (3) and (7) respectively (4) and (8). Including GDP/capita, life
expectancy at birth and fertility, which should account for the general level of
development of countries, the coefficient of urbanization, though smaller, remains
positive and highly significant.6 A five percentage point deviation of urbanization fosters
a supplementary five-year human capital acceleration of 0.07 and 0.085 per cent,
according to columns (7) respectively (8).

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 TABLE 3: IMPACT OF URBANIZATION ON HUMAN CAPITAL ACCUMULATION

Fixed effects First-difference GMM

(1) (2) (3) (4) (5) (6) (7) (8)

-0.311*** -0.311*** -0.409*** -0.461*** -0.030*** -0.226*** -0.265*** -0.418***
human capital (0.032) (0.031) (0.035) (0.036) (0.004) (0.019) (0.026) (0.043)
0.912*** 0.967*** 1.066*** 2.738*** 1.393*** 1.680***
urbanization (0.304) (0.379) (0.373) (0.204) (0.317) (0.561)
0.222*** 0.166*** 0.406*** 0.319***
GDP/capita (0.055) (0.056) (0.089) (0.083)
-1.614*** -1.474*** -0.240 -0.960*
life expectancy (0.384) (0.379) (0.440) (0.552)
-0.369*** -0.679***
Fertility (0.086) (0.139)
R2-within 0.23 0.25 0.29 0.32
Sargan's overidentification test 25.69 28.25 19.45 17.92
Wald test: joint significance 55.14** 211.2** 214.2** 163.1**
Wald test: time dummies 3166** 50.20** 23.44** 15.57**
AR(1) test -3.927** -4.498** -3.754** -3.566**
AR(2) test 0.627 0.402 0.199 0.747
^observations 659 659 615 615 548 548 507 507
Countries 111 111 108 108 111 111 108 108
 177

Non-linear Impact o f Urbanization

In Table 3, we have made the assumption that the marginal gains of urbanization
are independent of the absolute levels of urbanization. Hence, this amounts to stating that
the United States, with a 75 per cent urbanization rate in 1990, and Albania, with 37 per
cent, do benefit in the same fashion of a one percentage point increase in city dwellers,
everything else being constant. The fact that the possible number of contacts between
pairs o f persons increases exponentially when urbanization increases points to the fact
that marginal gains from urbanization should actually be increasing. Least, from an
econometric point of view, the fact that the urbanization variable is bounded below and
above strongly suggests that in between these two bounds, effects are non-linear.
In Table 4, we add a non-linear impact on the variable of interest, i.e.,
urbanization. Columns (1) and (4) of Table 4 are similar to columns (3) and (7) of Table
3, except that we additionally test for the non-linear returns of urbanization on human
capital accumulation. Speeds of convergence tend to remain stable. More interestingly
however, results in columns (1) and (4) depict a U-shaped relationship between
urbanization and human capital accumulation, hence increasing the marginal impact of
urbanization. According to column (4) results, urbanization highlights a deterrent effect
on educational attainments for urbanization levels below 40 per cent.7 In 1960, about 2/3
of the countries were in this situation, and in 1990, still 1/3. Hence this points to the
existence of an under-urbanization trap. This idea echoes with the idea originally
developed by Harris and Todaro (1970) according to which cities are too big from an
optimal point of view. Of course, our approach being macro rather than micro based, we
cannot identify urban concentration issues, which is the prime issue in Harris and Todaro.
Nonetheless, urban migration seems to act counterproductively against educational
attainments in the first stages of development.
A further observation is the unbounded increasing effect urbanization has on
human capital (beyond the under-urbanization trap). The conclusions to such a process
lead to a dead end, where countries with urbanization rates equal to 100 per cent have the
highest human capital accumulation rates. First, one has to note that this result is dictated
by our particular specification choice, i.e., introduce urbanization as a polynomial of
degree 2. Running again the same specification as in Table 4 column (4), with a degree 3
polynomial instead, the coefficient of (urbanization)3 is negative and statistically
significant (-2.916). Hence, we have a maximum beyond which, congestion effects
eventually dominate positive knowledge externalities. Put differently, results point to the
role of urbanization as an engine of human capital accumulation, provided levels of
human capital are above a certain threshold level. To deepen this idea, in columns (2) and
(3) respectively (5) and (6) of Table 4 we run basic specifications by adding the
following interaction terms, measuring the marginal impact of urbanization, according to
the base period level of human capital:

u rb a n iza tio n it [S + A Jiu m a n c a p ita lit ] (7)

u rb a n iza tio n it S + A ftu m a n c a p ita lit + A ^ih u m a n c a p ita lit)2] (8)

The 8 remains always positive, thus urbanization per ;se is non negligeable. Of
higher interest are the results on the interaction terms: A^ and A^ are positive, supporting
the idea that the marginal impact of urbanization increases with the absolute level of
educational attainments of a population. The higher the average level of education, the
higher the potential of externalities and hence the larger the role of cities as means of
diffusion of knowledge. This result is consistent with Glaeser (1994)’s claim that

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 178
schooling has a very powerful effect on increasing schooling growth. However,
according to the sign of , the marginal impact of urbanization decreases with the level
o f human capital above a certain threshold level of education. Note however that this
level lies at about 4 years, which is by far above the 1990 value of average secondary and
higher education in our sample and only concerns countries in the upper 5 percentile of
the distribution leaving room for the remaining 95 percentiles to benefit from positive
marginal impact of urbanization to be fostered by the level of human capital.

Long-run Effects

So far, we have supposed that urbanization impacts on human capital

accumulation within a 5-year period delay. However, urbanization may have persistent
effects on human capital, be it only due to population momentums in the age pyramid.
Hence, our hypothesis may be too restrictive. To check this potentially persistent effect of
urbanization, we introduce further lags of this variable in our regressions. Lags were
restricted up to 3 in order to maintain a reasonable sample size. Table 5 only reports
results for the variables of interest.
Interestingly, results mostly highlight the expected sign as above, however, only the
first 5-year lag variables are statistically significant, pointing to a limited persistence of
urbanization effect through time.

CONCLUSION

This paper has theoretically and empirically addressed the analysis of the link
between urbanization and human capital accumulation, using a rich cross-country data
set. We have shown that even after controlling for the level of development of countries,
urbanization plays a non-negligible role in speeding human capital accumulation. Cities
act as an ether, where barriers to knowledge flows shrink. Closeness between people
favors interactions, which may be at the root of spillovers from human capital. In return,
incentives to invest in education are reinforced, leading hence to higher levels of
education. The sole fact of distributing unevenly population across space may hence act
as a catalyst to foster investment in human capital.
A further important feature noticed throughout the analysis is the existence of an
under-urbanization trap, below which urbanization goes against accumulation of human
capital. A small excursion in the urban history may enlighten this observation: after the
Industrial Revolution, most European cities were industry-cities. Besides benefiting from
economies of scale due to investment in physical capital, the aim of gathering workers in
city plants was to reduce cost of monitoring them, in opposition to proto-industrial
periods, where labor force mainly worked at home. Obviously, this is a very crude
representation of the much more complex industrial city formation and growth. The core
idea, however is that cities did not entail high levels of human capital. Most of the
workers at that time were actually unskilled, and more importantly, had no incentive to
invest in education. This may be at the root of the under-urbanization trap that has been
highlighted, especially for developing countries nowadays.
So why is it that contemporaneous urbanization is so closely associated with human
capital formation? The fact is that development dragged in its wake more service-oriented
activities, requiring higher levels of interactions among people. In cities, manufacturing-
based activities were pushed at the outskirts and replaced by more service oriented and
specialized activities, with, as a corollary, higher skill requirements. In short, during early
stages of development, educational and skill levels were very low in (industrial) cities,
and more important, there was no strong incentive to increase it. Only more skill-oriented
activities foster educational attainments in cities, and hence human capital externalities.

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 Cities make up a more fertile ground for skills to blossom, but only from a certain level
of development upwards!
ABLE 4: NON-LINEAR IMPACT OF URBANIZATION
Fixed effects First-difference GMM
(1) (2) (3) (4) (5) (6)
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-0.452*** -0.679*** -0.711*** -0.233*** -0.380** -0.262*

human capital (0.035) (0.084) (0.084) (0.047) (0.171) (0.147)
-1.655** 0.792** 0.431 -2.793** 1.124** 0.782*
urbanization (0.675) (0.378) (0.400) (1.347) (0.484) (0.463)
2.775*** 3.476***
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(urbanization)2 (0.596) (0.882)

0.405*** 0.676*** 0.196 0.403***
urbanization*human capital (0.115) (0.154) (0.214) (0.141)
-0.044*** -0.051***
urbanization*(human capital)2 (0.017) (0.011)
0.193*** 0.212*** 0.194*** 0.221** 0.361*** 0.178***
GDP/capita (0.054) (0.054) (0.055) (0.093) (0.084) (0.067)
-0.817** -1.155*** -0.956** 1.374* 0.221 0.070
life expectancy (0.413) (0.401) (0.406) (0.802) (0.541) (0.430)
R2-within 0.32 0.31 0.32
Sargan's overidentification test 17.27 18.89 20.06
Wald test: joint significance 158.1** 281.9 281.8**
Wald test: time dummies 28.92** 30.97 37.21**
AR(1) test -3.975** -3.730** -3.757**
AR(2) test 0.555 0.156 0.440
Observations 615 615 615 507 507 507
Countries 108 108 108 108 108 108
 TABLE 5: PERSISTENCE OF THE IMPACT OF URBANIZATION

Fixed effects First-difference GMM

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(1) (2) (3) (4)

2.062* -0.734 0.261 -4.150***
urbanization^) (1.216) (3.065) (1.100) (1.455)
1.896 1.999 0.328 -2.365
urbanization^.!) (1.883) (4.379) (1.229) (2.319)
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-1.546 -3.183 1.694 0.122

urbanization^) (1.694) (3.940) (1.268) (2.336)
2.650** 3.089 -0.678 1.378
urbanization^) (1.176) (2.670) (1.112) (1.732)
4.715 6.119***
(urbanization)2^) (3.092) (2.049)
-1.306 2.135
(urbanization)2^.!) (4.195) (2.941)
2.022 1.228
(urbanization)2^ ) (3.732) (2.352)
-0.929 -3.022*
(urbanization)2^ ) (2.615) (1.879)
^observations 332 332 211 211
^countries 111 111 108 108

oo
o
 181
Furthermore, when running our regressions, we have implicitly supposed that
the link goes from urbanization to human capital accumulation, hence setting a precise
causal link. Though this may be a reasonable assumption, the reverse causality could also
be supported. This is for instance the case in Stark
and Wang (2002) where agents form expectations on their returns to capital if they
migrate. Hence, investing in human capital is a prior to international migration.
Finally, possible directions for further research should disentangle the effect of
urbanization versus urban concentration. Henderson (2003) has shown that too high
urban concentration deters growth. Does this result hold for human capital accumulation
too? Moreover, separating the effect of urbanization and urban concentration would allow
us to better tackle the issue of developed (characterized by high levels of urbanization)
versus developing countries (characterized by high levels of urban primacy).

APPENDIX: DATA SOURCES

Human Capital
Secondary education: Average years of secondary schooling in the total
population aged 25 and over, Barro-Lee. Census and survey figures primarily from
UNESCO Statistical Yearbooks and UN Demographic Yearbooks fill two fifths of the
observations. The remaining values are estimated using UNESCO school enrollment data
and a perpetual inventory method. The data are not adjusted for quality of education or
length of school day or year.
Higher education: Average years of higher schooling in the total population
aged 25 and over, Barro-Lee. Census and survey figures primarily from UNESCO
Statistical Yearbooks and UN Demographic Yearbooks fill two fifths of the observations.
The remaining values are estimated using UNESCO school enrollment data and a
perpetual inventory method. The data are not adjusted for quality of education or length
of school day or year.
Total education: Average schooling years in the total population aged 25 and
over, Barro-Lee. Census and survey figures primarily from UNESCO Statistical
Yearbooks and UN Demographic Yearbooks fill two fifths of the observations. The
remaining values are estimated using UNESCO school enrollment data and a perpetual
inventory method. The data are not adjusted for quality of education or length of school
day or year.

Urbanization
This variable is the ratio of the total urban population variable and the total
population variable.
National urban population: UN World Urbanization Prospects Table A.3 Urban
population. Values for Czechoslovakia, Yugoslavia and USSR are summed over former
constituent republics. Values for West Germany are calculated using the World Bank
WDI urban per cent of the Penn5.6 population figure.
National population: UN World Urbanization Prospects Table A.5 Total
population. Values for West Germany, Czechoslovakia, Yugoslavia and USSR are taken
from the Penn World tables 5.6 (1995 are missing observations).

GDP Per Capita

log of real GDP per capita in constant dollars, chain index, expressed in
international prices, base year 1985. Penn World Tables Mark 5.6. 1995 values are
estimated using World Bank WDI yearly real GDP growth figures on 1990 rgdpcPN
values.

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 182
Life Expectancy
log o f life expectancy at birth in years, five year average from base year (e.g.
average over 80-84). Czechoslovakia, Yugoslavia and USSR are averages over the
constituent republics weighted by population share. The values for united Germany are
substituted for West Germany. World Bank WDI.

Fertility
log o f total fertility rate, births per woman, five year average from base year
(e.g. average over 80-84). Czechoslovakia, Yugoslavia and USSR are averages over the
constituent republics weighted by population share. The values for united Germany are
substituted for West Germany. World Bank WDI.

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 183
ENDNOTES

1 See Ciccone and Peri (2006), as well as Moretti (2004) for a survey of micro-level studies.
2 See Galor and Tssidon (1993).
3 Remember that the urbanization rate is bounded between 0 and 1, contrary to the other two
variables which are open-ended.
4 These results are all significant at 1 per cent. Similar results were obtained when weighting by a
measure of GDP/capita.
5 This is exactly what we find here. GMM coefficients for are in between the OLS and fixed effect
estimators, (s for OLS estimations are given by 0.059***,0.001, -0.032*** and -0.040** for first,
second, third and fourth columns respectively).
6 Other controls have been included (road density, telephone main lines per 1000 inhabitants, trade
relative to GDP), but left the results qualitatively unchanged.
7 Note that this result should not be taken at face value. Changing the control variables induces
slight changes in the urbanization coefficients, and hence, in the minimum of the U-shaped
relationship. The important point is that additional city dwellers seem to deter human capital
accumulation for low levels of urbanization.

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