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A two-sector OLG economy: economic growth and demographic behaviour

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  • Fanti, Luciano
  • Gori, Luca

Abstract

We analyse an overlapping generations economy with two sectors of production: a capital-intensive commodity sector and a labour-intensive services sector. First, we consider an economy with exogenous population and study the effects of a change in the individual preference for old-aged services that causes a reallocation of labour between sectors on per capita income. Then, we compare the results with the standard Diamond (1965) style one-sector economy. Second, we endogenise fertility founding that a reallocation of labour in favour of the services sector causes an additional beneficial effect on per capita income with respect to the model with exogenous population. Third, we further introduce endogenous lifetime through public health investments, showing that multiple regimes of development may exist. In this context, the a rise in the preference for old-aged services may help escaping from poverty.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18869.

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Date of creation: 26 Nov 2009
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Handle: RePEc:pra:mprapa:18869

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Keywords: Fertility; Life expectancy; OLG model; Public health expenditure; Services market;

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  1. Galor, Oded & Weil, David, 1995. "The Gender Gap, Fertility and Growth," CEPR Discussion Papers 1157, C.E.P.R. Discussion Papers.
  2. Chakraborty, Shankha, 2004. "Endogenous lifetime and economic growth," Journal of Economic Theory, Elsevier, vol. 116(1), pages 119-137, May.
  3. Fanti, Luciano & Gori, Luca, 2010. "Endogenous fertility, endogenous lifetime and economic growth: the role of child policies," MPRA Paper 26146, University Library of Munich, Germany.
  4. Patricia Apps & Ray Rees, 2004. "Fertility, Taxation and Family Policy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(4), pages 745-763, December.
  5. Bas van Groezen & Lex Meijdam & Harrie A. A. Verbon, 2005. "Serving the old: ageing and economic growth," Oxford Economic Papers, Oxford University Press, vol. 57(4), pages 647-663, October.
  6. Gary S. Becker, 1960. "An Economic Analysis of Fertility," NBER Chapters, in: Demographic and Economic Change in Developed Countries, pages 209-240 National Bureau of Economic Research, Inc.
  7. Luciano Fanti & Luca Gori, 2009. "Endogenous fertility, endogenous lifetime and economic growth: the role of health and child policies," Discussion Papers 2009/91, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
  8. K Blackburn & H Issa, 2002. "Endogenous Life Expectancy in a Simple Model of Growth," The School of Economics Discussion Paper Series 0217, Economics, The University of Manchester.
  9. Blackburn, Keith & Cipriani, Giam Pietro, 2002. "A model of longevity, fertility and growth," Journal of Economic Dynamics and Control, Elsevier, vol. 26(2), pages 187-204, February.
  10. Bas Van Groezen & Lex Meijdam & Harrie A. A. Verbon, 2007. "Increased Pension Savings: Blessing or Curse? Social Security Reform in a Two-Sector Growth Model," Economica, London School of Economics and Political Science, vol. 74(296), pages 736-755, November.
  11. Eckstein, Zvi & Wolpin, Kenneth I., 1985. "Endogenous fertility and optimal population size," Journal of Public Economics, Elsevier, vol. 27(1), pages 93-106, June.
  12. Bas van Groezen & Lex Meijdam & Harrie A. A. Verbon, 2007. "The Case For Pay-As-You-Go Pensions In A Service Economy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(2), pages 151-165, 05.
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