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

Author

Listed:
  • Marion Davin

    (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)

  • Karine Gente

    (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)

  • Carine Nourry

    (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)

Abstract

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.

Suggested Citation

  • Marion Davin & Karine Gente & Carine Nourry, 2013. "Should a Country Invest more in Human or Physical Capital? A Two-Sector Endogenous Growth Approach," AMSE Working Papers 1330, Aix-Marseille School of Economics, France, revised May 2013.
    • Handle: RePEc:aim:wpaimx:1330
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Endogenous growth; social optimum; two-sector model; factor intensity differential;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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