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

  • Matteo Cervellati
  • Uwe Sunde

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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File URL: http://www.aeaweb.org/aer/data/dec05_data_20030573.zip
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 95 (2005)
Issue (Month): 5 (December)
Pages: 1653-1672

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Handle: RePEc:aea:aecrev:v:95:y:2005:i:5:p:1653-1672
Note: DOI: 10.1257/000282805775014380
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