On human capital and economic growth with random technology shocks

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On human capital and economic growth with random technology shocks

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Alberto BUCCI ()
Cinzia COLAPINTO ()
Martin FORSTER ()
Davide LA TORRE ()

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Abstract

We embed the Uzawa-Lucas human capital accumulation technology into the Mankiw-Romer-Weil exogenous growth model. The paper is divided into two parts. In the first part we assume that the rate of technological progress is exogenous and deterministic and study the local dynamics of the model around its steady-state equilibrium. The first order conditions lead to a system of four nonlinear differential equations. By reducing the dimension of the system to three, we find that the equilibrium is a saddle point. If the equations system is attacked in its original dimension, and by making use of an arbitrage condition, we prove that the equilibrium is unstable. In the second part of the paper technology is assumed to be subject to random shocks driven by a geometric Brownian motion. Using the Hamilton-Jacobi-Bellman equation, and through numerical simulations, we discuss the effects of technology shocks on the optimal policies of consumption and the allocation of human capital across sectors.

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Paper provided by Department of Economics University of Milan Italy in its series Departemental Working Papers with number 2008-36.

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Date of creation: 05 Nov 2008
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Handle: RePEc:mil:wpdepa:2008-36

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Find related papers by JEL classification:
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
C63 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computational Techniques
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes

This paper has been announced in the following NEP Reports:

NEP-ALL-2009-06-17 (All new papers)
NEP-DEV-2009-06-17 (Development)
NEP-DGE-2009-06-17 (Dynamic General Equilibrium)
NEP-HRM-2009-06-17 (Human Capital & Human Resource Management)

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