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Open Economy Growth Model with Human Capital and Public Debt

Author

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  • Micha? Konopczy?ski

    (Pozna? University of Economics and Business)

Abstract

This paper presents an endogenous growth model of an open economy with wide range of instruments of fiscal policy. We distinguish three factors of production: capital, raw labor, and human capital. Education expenditures and investment spending are crucial for long-run growth. Economic agents are continuously optimizing under conditions of imperfect information (externalities). The government may play the role of the benevolent social planner which may transform the second-best decisions of individual agents into the first-best outcome. To that end we search for the optimal values of certain parameters of fiscal policy, including public consumption, public spending on education, the size of public deficit (as percent of GDP). As the model incorporates some open-economy variables, it is very complex, and consequently does not have a closed-form (analytical) solution. We present a numerical procedure which may be applied to numerically solve the model. Finally, we present some preliminary simulations based on stylized values of parameters and exogenous variables.

Suggested Citation

  • Micha? Konopczy?ski, 2019. "Open Economy Growth Model with Human Capital and Public Debt," Proceedings of International Academic Conferences 9411960, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iacpro:9411960
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    File URL: https://iises.net/proceedings/iises-international-academic-conference-paris/table-of-content/detail?cid=94&iid=020&rid=11960
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    More about this item

    Keywords

    fiscal policy; economic growth; human capital; public deficit; government debt;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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