Human capital externality and sensitivity of TFP growth

This paper explains how externality of human capital enhances TFP growth. It measures the sensitivity of TFP growth to human capital quality in different levels of return to scales by using the appropriate method of growth accounting. Applying this method to some transition economies; Egypt, Tunisia, Turkey and Saudi Arabia, we proved an existence of an inverse relationship between returns to scale and TFP growth, and positive relationship between human capital and TFP growth in all countries. In particular, the growth of the TFP is attributed to the growth of GDP that is not adequately explained by the growth of physical capital and human capital. Then, the calculation of TFP growth in different level of returns to scales and adjusting the weighted elements of human capital, we improved strong sensitivity of TFP growth to human capital quality.