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Physical And Human Capital Investment: Relative Substitutes In The Endogenous Growth Process

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Author Info
Jorge Durán () (Universidad de Alicante)
Alexandra Rillaers () (Universidad de Alicante)

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Abstract

This paper aims at studying the interaction between growth of real output and human capital accumulation when education requires investment of physical resources. To this end we investigate the aggregate implications of individual specific uncertainty about returns to investment in education in the absence of insurance markets. We do so in a general equilibrium OLG model in which physical resources must be devoted to education in order to accumulate human capital. We find that uncertainty with incomplete financial markets may strongly affect individual behavior but not the aggregate of the economy: different degrees of uncertainty will induce different intensities of human to physical capital but will not have a significant impact on the long run growth rate of the economy. This framework allows us to conclude that investing less in education in relative terms does not necessarily lead to less growth: the accumulation of physical and human capital display some degree of substitutability as an engine for long run growth.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2002-18.pdf
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Publisher Info
Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2002-18.

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Length: 32 pages
Date of creation: Oct 2002
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Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2002-18

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Related research
Keywords: Overlapping generations; Investment in education; Uninsured shocks; Human capital; Sustained growth.;

Find related papers by JEL classification:
E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
I29 - Health, Education, and Welfare - - Education - - - Other

References listed on IDEAS
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  1. Aghion, Philippe & Bolton, Patrick, 1992. "Distribution and growth in models of imperfect capital markets," European Economic Review, Elsevier, vol. 36(2-3), pages 603-611, April. [Downloadable!] (restricted)
  2. Altonji, Joseph G & Dunn, Thomas A, 1996. "The Effects of Family Characteristics on the Return to Education," The Review of Economics and Statistics, MIT Press, vol. 78(4), pages 692-704, November. [Downloadable!] (restricted)
  3. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Blackwell Publishing, vol. 60(1), pages 35-52, January. [Downloadable!] (restricted)
  4. Williams, Joseph T, 1978. "Risk, Human Capital, and the Investor's Portfolio," Journal of Business, University of Chicago Press, vol. 51(1), pages 65-89, January. [Downloadable!] (restricted)
  5. Williams, Joseph T, 1979. "Uncertainty and the Accumulation of Human Capital over the Life Cycle," Journal of Business, University of Chicago Press, vol. 52(4), pages 521-48, October. [Downloadable!] (restricted)
  6. David Card & Alan Krueger, 1990. "Does School Quality Matter? Returns to Education and the Characteristics of Public Schools in the United States," Working Papers 645, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
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  7. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," Journal of Political Economy, University of Chicago Press, vol. 70, pages 9. [Downloadable!] (restricted)
  8. Kodde, David A. & Ritzen, Josef M.M., 1985. "The demand for education under capital market imperfections," European Economic Review, Elsevier, vol. 28(3), pages 347-362, August. [Downloadable!] (restricted)
  9. Levhari, David & Weiss, Yoram, 1974. "The Effect of Risk on the Investment in Human Capital," American Economic Review, American Economic Association, vol. 64(6), pages 950-63, December. [Downloadable!] (restricted)
  10. Theodore W. Schultz, 1960. "Capital Formation by Education," Journal of Political Economy, University of Chicago Press, vol. 68, pages 571. [Downloadable!] (restricted)
  11. Snow, Arthur & Warren, Ronald S, Jr, 1990. "Human Capital Investment and Labor Supply under Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 195-206, February. [Downloadable!] (restricted)
  12. Kodde, David A, 1986. "Uncertainty and the Demand for Education," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 460-67, August. [Downloadable!] (restricted)
  13. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July. [Downloadable!] (restricted)
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