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Inflation crises, human capital formation and growth

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Author Info
F. HEYLEN ()
L. POZZI ()
J. VANDEWEGE ()

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Abstract

This paper shows that inflation crises may stimulate the accumulation of human kapital. A crucial idea is that high inflation undermines total factor productivity, which makes working and physical capital formation less attractive. If young agents consider high inflation to be temporary, they decide to study now and work later. During the inflation crisis the real economy declines. The increase in human capital, however, induces strong output growth after the crisis. Using GMM panel procedures, our empirical analysis for 86 countries in 1975-2000 confirms the positive effects from inflation crises on human capital. Our theoretical model and empirical results rationalize earlier empirical findings by Bruno and Easterly (Journal of Monetary Economics, 1998). As a by-product, our model is able to explain as an equilibrium phenomenon the often observed negative effects of high inflation on real wages.

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Publisher Info
Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 04/260.

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Length: 29 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:rug:rugwps:04/260

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Related research
Keywords: Human capital; education; inflation; crisis; economic growth; total factor productivity; real wages; openness; panel data;

Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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