Physical And Human Capital Investment: Relative Substitutes In The Endogenous Growth Process
AbstractThis 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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Bibliographic InfoPaper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2002-18.
Length: 32 pages
Date of creation: Oct 2002
Date of revision:
Publication status: Published by Ivie
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
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