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Human capital formation, life expectancy, and the process of development

  • Cervellati, Matteo
  • Sunde, Uwe

We provide a unified theory of the transition in income, life expectancy, education, and population size from a nondeveloped environment to sustained growth. Individuals optimally trade off the time cost of education with its lifetime returns. Initially, low longevity implies a prohibitive cost for human capital formation for most individuals. A positive feedback loop between human capital and increasing longevity, triggered by endogenous skill-biased technological progress, eventually provides sufficient returns for widespread education. The transition is not based on scale effects and induces population growth despite unchanged fertility. A simulation illustrates that the dynamics fit historical data patterns.

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Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 20083.

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Date of creation: 2005
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Publication status: Published in American Economic Review 5 95(2005): pp. 1653-1672
Handle: RePEc:lmu:muenar:20083
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Web page: http://www.vwl.uni-muenchen.de

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