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Should a Country Invest more in Human or Physical Capital? A Two-Sector Endogenous Growth Approach

  • Marion Davin

    ()

    (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université)

  • Karine Gente

    ()

    (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université)

  • Carine Nourry

    ()

    (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix-Marseille Université, IUF - Institut Universitaire de France - M.E.N.E.S.R. - Ministère de l'Éducation nationale, de l’Enseignement supérieur et de la Recherche)

Should a country invest more in human or physical capital? The present paper addresses this issue, considering the impact of different factor intensities between sectors on both optimal human and physical capital accumulation. Using a two-sector overlapping generations setting with endogenous growth driven by human capital accumulation, we prove that relative factor intensity between sectors drastically shapes the welfare analysis: two laissez-faire economies with the same global capital share may generate physical capital excess or scarcity, with respect to the optimum. The model for the Japanese economy, that experienced a factor intensity reversal after the oil shock, is then calibrated. It is shown that Japan invested relatively too much in human capital before 1975, but has not invested enough since 1990.

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Paper provided by HAL in its series Working Papers with number halshs-00822391.

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Date of creation: May 2013
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Handle: RePEc:hal:wpaper:halshs-00822391
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  1. Hernando Zuleta & Andrew T. Young, 2010. "Labor’s Shares in a Model of Induced Innovation," Working Papers 10-01, Department of Economics, West Virginia University.
  2. Akos Valentinyi & Berthold Herrendorf, 2008. "Measuring Factor Income Shares at the Sector Level," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 820-835, October.
  3. Chang-Tai Hsieh & Peter J Klenow, 2008. "Misallocation and Manufacturing TFP in China and India," 2008 Meeting Papers 121, Society for Economic Dynamics.
  4. Michele Boldrin & Ana Montes, 2005. "The Intergenerational State Education and Pensions," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 651-664.
  5. Galor, Oded, 1992. "A Two-Sector Overlapping-Generations Model: A Global Characterization of the Dynamical System," Econometrica, Econometric Society, vol. 60(6), pages 1351-86, November.
  6. Takahashi, Harutaka & Mashiyama, Koichi & Sakagami, Tomoya, 2012. "Does The Capital Intensity Matter? Evidence From The Postwar Japanese Economy And Other Oecd Countries," Macroeconomic Dynamics, Cambridge University Press, vol. 16(S1), pages 103-116, April.
  7. David Evans & Haluk Sezer, 2004. "Social discount rates for six major countries," Applied Economics Letters, Taylor & Francis Journals, vol. 11(9), pages 557-560.
  8. Kazuo Mino & Kazuo Nishimura & Koji Shimomura & Ping Wang, 2005. "Equilibrium Dynamics in Discrete-Time Endogenous Growth Models with Social Constant Returns," Discussion Papers in Economics and Business 05-34, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  9. Docquier, Frederic & Paddison, Oliver & Pestieau, Pierre, 2007. "Optimal accumulation in an endogenous growth setting with human capital," Journal of Economic Theory, Elsevier, vol. 134(1), pages 361-378, May.
  10. Areendam Chanda, . "The Rise in Returns to Education and the Decline in Household Savings," Departmental Working Papers 2005-05, Department of Economics, Louisiana State University.
  11. Eric W. Bond & Ping Wang & Chong K. Yip, 1993. "A general two-sector model of endogenous growth with human and physical capital: balanced growth and transitional dynamics," Research Paper 9324, Federal Reserve Bank of Dallas.
  12. Cremers, Emily T., 2006. "Dynamic efficiency in the two-sector overlapping generations model," Journal of Economic Dynamics and Control, Elsevier, vol. 30(11), pages 1915-1936, November.
  13. Marion Davin & Karine Gente & Carine Nourry, 2011. "Social Optimum in an OLG Model with Paternalistic Altruism," Working Papers halshs-00644094, HAL.
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