accepted estimates of the effect of increases in schooling on workers' salaries. Though the estimated model explained 78% of variation in income across countries, the estimates of implied that human capital's external effects on national income are greater than its direct effect on workers' salaries. Accounting for external effects Theodore Breton provided an insight that reconciled the large effect of human capital from schooling in the Mankiw, Romer and Weil model with the smaller effect of schooling on workers' salaries. He demonstrated that the mathematical properties of the model include significant external effects between the factors of production, because human capital and physical capital are multiplicative factors of production. The external effect of human capital on the productivity of physical capital is evident in the marginal product of physical capital: He showed that the large estimates of the effect of human capital in cross-country estimates of the model are consistent with the smaller effect typically found on workers' salaries when the external effects of human capital on physical capital and labor are taken into account. This insight significantly strengthens the case for the Mankiw, Romer, and Weil version of the Solow–Swan model. Most analyses criticizing this model fail to account for the pecuniary external effects of both types of capital inherent in the model. Total factor productivity The exogenous rate of TFP (total factor productivity) growth in the Solow–Swan model is the residual after accounting for capital accumulation. The Mankiw, Romer, and Weil model provide a lower estimate of the TFP (residual) than the basic Solow–Swan model because the addition of human capital to the model enables capital accumulation to explain more of the variation in income across countries. In the basic model, the TFP residual includes the effect of human capital because human capital is not included as a factor of production. Conditional convergence The Solow–Swan model augmented with human capital predicts that the income levels of poor countries will tend to catch up with or converge towards the income levels of rich countries if the poor countries have similar savings rates for both physical capital and human capital as a share of output, a process known as conditional convergence. However, savings rates vary widely across countries. In particular, since considerable financing constraints exist for investment in schooling, savings rates for human capital are likely to vary as a function of cultural and ideological characteristics in each country. Since