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Human Capital Evolution and Economic Crisis: Minding 'The Gap'

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Abstract

When an economy experiences crisis that reduces the level of human capital stock, such a change should be accompanied by a change in the investment level. Is this always the best thing to do? In an optimal growth model of human capital evolution this paper shows that cutting down investment during crisis may not always be the optimal response to crisis. At certain levels of human capital, maintaining the pre-crisis level of investment is optimal and may be crucial to economic success.

Suggested Citation

  • Titilola O. Giwa, 2001. "Human Capital Evolution and Economic Crisis: Minding 'The Gap'," Royal Holloway, University of London: Discussion Papers in Economics 00/9, Department of Economics, Royal Holloway University of London, revised Feb 2001.
  • Handle: RePEc:hol:holodi:0009
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    1. Michael Manove & A. Jorge Padilla, 1999. "Banking (Conservatively) with Optimists," RAND Journal of Economics, The RAND Corporation, pages 324-350.
    2. de Meza, David & Southey, Clive, 1996. "The Borrower's Curse: Optimism, Finance and Entrepreneurship," Economic Journal, Royal Economic Society, vol. 106(435), pages 375-386, March.
    3. Jürg Niehans, 1997. "Adam Smith and the Welfare Cost of Optimism," History of Political Economy, Duke University Press, vol. 29(2), pages 185-200, Summer.
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    Keywords

    Crisis; 'the gap'; Optimal Investment; Human Capital Evolution;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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