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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.

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 1996024.

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Length: 14
Date of creation: 01 Apr 1996
Date of revision: 00 Oct 1996
Handle: RePEc:ctl:louvir:1996024
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Keywords: endogenous growth; human capital; aspirations; poverty trap; limit cycle;

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Find related papers by 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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  1. David DE LA CROIX & Philippe MICHEL, 2001. "Altruism and Self-Restraint," Annales d'Economie et de Statistique, ENSAE, issue 63-64, pages 233-259.
  2. Gary S. Becker, 1991. "Habits, Addictions, and Traditions," University of Chicago - George G. Stigler Center for Study of Economy and State 71, Chicago - Center for Study of Economy and State.
  3. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  4. Easterly, William & Kremer, Michael & Pritchett, Lant & Summers, Lawrence H., 1993. "Good policy or good luck?: Country growth performance and temporary shocks," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 459-483, December.
  5. De La Croix, D. & Michel, P., 1997. "Optimal Growth when Tastes are Inherited," ASSET - Instituto De Economia Publica 168, ASSET (Association of Southern European Economic Theorists).
  6. Galor, Oded, 1996. "Convergence? Inferences from Theoretical Models," Economic Journal, Royal Economic Society, vol. 106(437), pages 1056-69, July.
  7. van Ewijk, Casper, 1982. "A Spectral Analysis of the Kondratieff-Cycle," Kyklos, Wiley Blackwell, vol. 35(3), pages 468-99.
  8. David De La Croix & Jean-Pierre Urbain, 1998. "Intertemporal substitution in import demand and habit formation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(6), pages 589-612.
  9. Nehru, Vikram & Swanson, Eric & Dubey, Ashutosh, 1995. "A new database on human capital stock in developing and industrial countries: Sources, methodology, and results," Journal of Development Economics, Elsevier, vol. 46(2), pages 379-401, April.
  10. Benhabib, Jess & Gali, Jordi, 1995. "On growth and indeterminacy: some theory and evidence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 43(1), pages 163-211, December.
  11. de la Croix, David, 1995. "Economic Growth and the Relativity of Satisfaction," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1995023, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  12. Quah, Danny T., 1996. "Empirics for economic growth and convergence," European Economic Review, Elsevier, vol. 40(6), pages 1353-1375, June.
  13. Andrew B. Abel, 1990. "Asset Prices under Habit Formation and Catching up with the Joneses," NBER Working Papers 3279, National Bureau of Economic Research, Inc.
  14. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October.
  15. Robert E Lucas, 1999. "Making a Miracle," Levine's Working Paper Archive 2101, David K. Levine.
  16. de la Croix, David & Monfort, Philippe, 1999. "Education Funding and Regional Convergence," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1999010, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  17. Azariadis, Costas & Drazen, Allan, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 501-26, May.
  18. de la Croix, David, 1996. "The dynamics of bequeathed tastes," Economics Letters, Elsevier, vol. 53(1), pages 89-96, October.
  19. Clark, Andrew E. & Oswald, Andrew J. & Warr, Peter B., 1994. "Is job satisfaction u-shaped in age ?," CEPREMAP Working Papers (Couverture Orange) 9407, CEPREMAP.
  20. Robert J. Barro, 1989. "Economic Growth in a Cross Section of Countries," NBER Working Papers 3120, National Bureau of Economic Research, Inc.
  21. Alex Michalos, 1980. "Satisfaction and happiness," Social Indicators Research, Springer, vol. 8(4), pages 385-422, December.
  22. Solomou, Solomos, 1986. "Non-Balanced Growth and Kondratieff Waves in the World Economy, 1850–1913," The Journal of Economic History, Cambridge University Press, vol. 46(01), pages 165-169, March.
  23. Hercowitz, Zvi & Sampson, Michael, 1991. "Output Growth, the Real Wage, and Employment Fluctuations," American Economic Review, American Economic Association, vol. 81(5), pages 1215-37, December.
  24. Easterlin, Richard A, 1971. "Does Human Fertility Adjust to the Environment?," American Economic Review, American Economic Association, vol. 61(2), pages 399-407, May.
  25. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 35-47, June.
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Cited by:

  1. Neugart, M. & Tuinstra, J., 2001. "Endogenous Fluctuations in the Demand of Education," CeNDEF Working Papers 01-04, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  2. 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.
  3. Jordi Caballé & Ana Moro-Egido, 2008. "The Effect of Aspirations, Habits, and Social Security on the Distribution of Wealth," UFAE and IAE Working Papers 761.08, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  4. Toni Mora, 2005. "Conditioning factors on regional European clubs - a distributional approach," ERSA conference papers ersa05p302, European Regional Science Association.
  5. 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.
  6. Strulik, Holger, 2013. "How status concerns can make us rich and happy," Center for European, Governance and Economic Development Research Discussion Papers 170, University of Goettingen, Department of Economics.
  7. Rosenblatt-Wisch, Rina, 2008. "Loss aversion in aggregate macroeconomic time series," European Economic Review, Elsevier, vol. 52(7), pages 1140-1159, October.
  8. Rillaers, Alexandra, 1998. "Growth and Human Capital Accumulation under Uncertainty," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1998020, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  9. Gori, Luca & Sodini, Mauro, 2012. "Indeterminacy and nonlinear dynamics in an OLG growth model with endogenous labour supply and inherited tastes," MPRA Paper 35942, University Library of Munich, Germany.
  10. 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 Univeristy of Manchester.

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