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Human Capital Formation, Life Expectancy, and the Process of Development

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  • Matteo Cervellati
  • Uwe Sunde

Abstract

We provide a unified theory of the transition in income, life expectancy, education, and population size from a nondeveloped environment to sustained growth. Individuals optimally trade off the time cost of education with its lifetime returns. Initially, low longevity implies a prohibitive cost for human capital formation for most individuals. A positive feedback loop between human capital and increasing longevity, triggered by endogenous skill-biased technological progress, eventually provides sufficient returns for widespread education. The transition is not based on scale effects and induces population growth despite unchanged fertility. A simulation illustrates that the dynamics fit historical data patterns.

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  • Matteo Cervellati & Uwe Sunde, 2005. "Human Capital Formation, Life Expectancy, and the Process of Development," American Economic Review, American Economic Association, vol. 95(5), pages 1653-1672, December.
    • Handle: RePEc:aea:aecrev:v:95:y:2005:i:5:p:1653-1672
    Note: DOI: 10.1257/000282805775014380
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