Does Low Education Delay Structural Transformation?

Why do some countries industrialize later than others? Recent literature suggests that the prime reason is low agricultural productivity. This paper argues that the initial level of human capital could also be a contributing factor. We construct a neoclassical growth model, which predicts that countries with a greater initial knowledge gap industrialize later. We use this model as a baseline and calibrate it to historical data for the United Kingdom. We find that our baseline model performs well in replicating actual historical U.K. gross domestic product series during the postindustrialization era. The same model also explains a significant fraction of past and recent cross-country variations in per capita income levels.