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Money, child quantity-quality tradeoff, growth and welfare in a Schumpeterian model with status-seeking in human capital

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  • Qichun He

    (Central University of Finance and Economics)

Abstract

This paper models human capital in the utility function as status-seeking. We find that, when the status-seeking in human capital is strong, monetary expansion increases fertility and time allocated to education (no child quantity-quality tradeoff) but decreases work time in production and R&D. As a result, the increase in the growth rate of human capital accumulation may offset the decrease in the growth rate of technology. Both growth and welfare are decreasing in the nominal interest rate. By contrast, without the status-seeking in human capital, there is a quantity-quality tradeoff for children under monetary expansion: a higher nominal interest rate increases fertility at the expense of lower education time, leaving work (production and R&D) time unchanged. Growth is decreasing in the nominal interest rate but welfare is an inverted-U function of the nominal interest rate. Cross-country panel data regression finds that inflation has a negative effect on education if the preference for human capital is relatively weak and a positive effect on education if the preference for human capital is strong enough, which provides support of our theory.

Suggested Citation

  • Qichun He, 2025. "Money, child quantity-quality tradeoff, growth and welfare in a Schumpeterian model with status-seeking in human capital," Journal of Economics, Springer, vol. 145(3), pages 263-293, August.
    • Handle: RePEc:kap:jeczfn:v:145:y:2025:i:3:d:10.1007_s00712-025-00901-5
    DOI: 10.1007/s00712-025-00901-5
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    Keywords

    Status-seeking in human capital; Cash-in-advance; Schumpeterian model; Child quantity-quality tradeoff; Growth and welfare; Panel data;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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