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Economic development and convergence clubs: the role of inherited tastes and human capital

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  • de la Croix, David

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) ; Belgian National Fund for Scientific Research (FNRS))

Abstract

We present an overlapping generations model with endogenous growth in which children inherit from the previous generation human capital and life standard aspirations. Adults evaluate their own consumption with respect to a baseline requirement which depends on their parents past consumption. The presence of bequeathed tastes changes significantly the dynamic properties of the model. First, starting with too high aspirations or with too low education spendings lead the economy to a poverty trap. Second, the economy can be characterized by oscillations because inherit human capital may not be sufficient to cover the bequest in terms of higher aspirations. Third, the endogenous growth steady state can be surrounded by a repelling cycle which delimits an attraction basin.

Suggested Citation

  • de la Croix, David, 1996. "Economic development and convergence clubs: the role of inherited tastes and human capital," LIDAM Discussion Papers IRES 1996024, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Oct 1996.
  • Handle: RePEc:ctl:louvir:1996024
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    Cited by:

    1. Rillaers, Alexandra, 1998. "Growth and Human Capital Accumulation under Uncertainty," LIDAM Discussion Papers IRES 1998020, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    2. Jordi Caballé & Ana I. Moro Egido, 2008. "The Effect of Aspirations, Habits, and Social Security on the Distribution of Wealth," ThE Papers 08/02, Department of Economic Theory and Economic History of the University of Granada..
    3. Luca Gori & Mauro Sodini, 2014. "Indeterminacy and nonlinear dynamics in an OLG growth model with endogenous labour supply and inherited tastes," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 37(1), pages 159-179, April.
    4. Rosenblatt-Wisch, Rina, 2008. "Loss aversion in aggregate macroeconomic time series," European Economic Review, Elsevier, vol. 52(7), pages 1140-1159, October.
    5. Marconi, G. & de Grip, A., 2014. "Education and growth with learning by doing," ROA Research Memorandum 010, Maastricht University, Research Centre for Education and the Labour Market (ROA).
    6. Amavilah, Voxi Heinrich, 2018. "Endogenous constraints, coefficients of economic distance, and economic performance of African countries – An exploratory essay," MPRA Paper 90065, University Library of Munich, Germany.
    7. Lionel Artige & Carmen Camacho & David De La Croix, 2004. "Wealth Breeds Decline: Reversals of Leadership and Consumption Habits," Journal of Economic Growth, Springer, vol. 9(4), pages 423-449, December.
    8. Dimitris K. Christopoulos & Efthymios G. Tsionas, 2007. "Are Regional Incomes in the USA Converging? A Non-linear Perspective," Regional Studies, Taylor & Francis Journals, vol. 41(4), pages 525-530.
    9. Chakraborty, Kamalika & Chakraborty, Bidisha, 2018. "Endogenous Altruism, Learning by Doing Effect and Impact of Domestic Policies on Child Labour," MPRA Paper 89229, University Library of Munich, Germany.
    10. Luciano Fanti & Luca Gori & Cristiana Mammana & Elisabetta Michetti, 2018. "A model of growth with inherited tastes," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 41(2), pages 163-186, November.
    11. Caballé, Jordi & Moro-Egido, Ana I., 2021. "Do aspirations reduce differences in wealth accumulation?," Economic Modelling, Elsevier, vol. 102(C).
    12. Michael Neugart & Jan Tuinstra, 2003. "Endogenous fluctuations in the demand for education," Journal of Evolutionary Economics, Springer, vol. 13(1), pages 29-51, February.
    13. Lyons, Sean & Mayor, Karen & Tol, Richard S.J., 2009. "Convergence of consumption patterns during macroeconomic transition: A model of demand in Ireland and the OECD," Economic Modelling, Elsevier, vol. 26(3), pages 702-714, May.
    14. Holger Strulik, 2015. "How Status Concerns Can Make Us Rich and Happy," Economica, London School of Economics and Political Science, vol. 82, pages 1217-1240, December.
    15. Kojun Hamada & Tsuyoshi Shinozaki & Mitsuyoshi Yanagihara, 2017. "Aspirations and the transfer paradox in an overlapping generations model," Journal of Economics, Springer, vol. 122(3), pages 279-301, November.
    16. Liam C. Malloy, 2015. "Loss aversion, education, and intergenerational mobility," Education Economics, Taylor & Francis Journals, vol. 23(3), pages 318-337, June.
    17. D Varvarigos, 2004. "Non-neutrality and Uncertainty in a Model of Growth," Centre for Growth and Business Cycle Research Discussion Paper Series 41, Economics, The University of Manchester.
    18. Toni Mora, 2005. "Conditioning factors on regional European clubs - a distributional approach," ERSA conference papers ersa05p302, European Regional Science Association.
    19. Lu, Chia-Hui, 2018. "Social status, compulsory education, and growth," Economic Modelling, Elsevier, vol. 68(C), pages 425-434.
    20. Jordi Caballé & Ana I. Moro-Egido, 2015. "On the Accumulation of Wealth under Aspirations," Working Papers 826, Barcelona Graduate School of Economics.

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    More about this item

    Keywords

    endogenous growth; human capital; aspirations; poverty trap; limit cycle;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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