Demographic change, human capital and welfare

Projected demographic changes in the U.S. will reduce the share of the working-age population. Analyses based on standard OLG models predict that these changes will increase the capital-labor ratio. Hence, rates of return to capital decrease and wages increase, which has adverse welfare consequences for current cohorts who will be retired when the rate of return is low. This paper argues that adding endogenous human capital accumulation to the standard model dampens these forces. We find that this adjustment channel is quantitatively important. The standard model with exogenous human capital predicts welfare losses up to 12.5% (5.6%) of lifetime consumption, when contribution (replacement) rates to the pension system are kept constant. These numbers reduce to approximately 8.7% (4.4%) when human capital can endogenously adjust.     

Asset bubbles,labour market frictions and R&D‐based growth

Employing an overlapping generations model of R&D‐based growth with labour market frictions, this paper examines how employment changes induced by labour market frictions influence asset bubbles and long‐run economic growth. Asset bubbles can (cannot) exist when the employment rate is high (low), which leads to higher (lower) economic growth through labour market efficiency. We also explore the steady state and transitional dynamics of bubbles, economic growth and employment. Furthermore, we show that policy or parameter changes with a negative influence on the labour market can lead to a bubble burst.     

Demographic structure and capital accumulation

This paper develops an overlapping-generations (OLG) model to analyze the consequences of demographic structure changes induced by an exogenous shift in the birth rate. We first show that a finite growth rate of the population that maximizes long-run capital per capita exists. Then, we examine the theoretical properties of this growth rate by showing that: (i) it corresponds to the demographic structure such that the average ages of capital holders and workers are equal; (ii) it is associated to an efficient steady state; (iii) it increases with compulsory transfers from younger to older generations. Finally, we explain why standard OLG models do not exhibit such a growth rate.     

Tax avoidance,human capital accumulation and economic growth

Human capital accumulation may negatively affect economic growth by increasing tax avoidance and reducing effective tax rates and productive public investment. This paper analyzes how the endogenous feedback between human capital accumulation and tax avoidance affects economic growth and macroeconomic dynamics. Our findings show that this interaction produces remarkable growth and welfare effects.     

Inequality,growth, and environmental quality trade‐offs in a model with human capital accumulation

This paper develops a simple endogenous growth model where pollution exposure and vulnerability are unequally spread across the population, and growth and distribution are endogenous. In this set‐up, we investigate whether trade‐offs between growth, distributional, and environmental concerns may emerge. We show that a tighter environmental policy reduces income inequality and can improve both growth and total welfare. Immediate welfare losses, though, do occur, and are larger for countries that start at low levels of environmental quality (e.g. developing countries).     

Why England? Demographic factors, structural change and physical capital accumulation during the Industrial Revolution

Why did England industrialize first? And why was Europe ahead of the rest of the world? Unified growth theory in the tradition of Galor and Weil (2000, American Economic Review, 89, 806–828) and Galor and Moav (2002, Quartely Journal of Economics, 177(4), 1133–1191) captures the key features of the transition from stagnation to growth over time. Yet we know remarkably little about why industrialization occurred much earlier in some parts of the world than in others. To answer this question, we present a probabilistic two-sector model where the initial escape from Malthusian constraints depends on the demographic regime, capital deepening and the use of more differentiated capital equipment. Weather-induced shocks to agricultural productivity cause changes in prices and quantities, and affect wages. In a standard model with capital externalities, these fluctuations interact with the demographic regime and affect the speed of growth. Our model is calibrated to match the main characteristics of the English economy in 1700 and the observed transition until 1850. We capture one of the key features of the British Industrial Revolution emphasized by economic historians — slow growth of output and productivity. Fertility limitation is responsible for higher per capita incomes, and these in turn increase industrialization probabilities. The paper also explores the availability of nutrition for poorer segments of society. We examine the influence of redistributive institutions such as the Old Poor Law, and find they were not decisive in fostering industrialization. Simulations using parameter values for other countries show that Britain’s early escape was only partly due to chance. France could have moved out of agriculture and into manufacturing faster than Britain, but the probability was less than 25%. Contrary to recent claims in the literature, 18th century China had only a minimal chance to escape from Malthusian constraints.     

Technological change, human capital update and growth policies

This paper presents a model of growth driven simultaneously by innovation and human capital accumulation. Two different long-run equilibria are possible, according to whether or not workers skills are completely updated over time as knowledge expands. Skill gaps could arise as a consequence of poor education infrastructures, even in the efficient solution; in such circumstances, we find that whilst education policies are able to encourage growth, R&D policies are not. Otherwise, subsidizing education becomes ineffective for enhancing growth, although it could be necessary to avoid possible skill gaps originated by the R&D growth-enhancing policy.JEL Classification: O41, O33The authors wish to thank the financial support received for the project SEC 2001-2469 (Ministry of Science and Technology, Spain, and FEDER), as well as the comments of the co-editor and the referees.     

A note on work–leisure choice, human capital accumulation, and endogenous growth

The growth model of Lucas [Lucas Jr., R.E., 1988. On the mechanics of economic development. Journal of Monetary Economics 22 (1), 3–42] is enriched with people having the opportunity to optimally allocate a fraction of their time to non-productive activities (‘leisure’). It is found that the chosen amount of leisure reduces the steady-state rate of growth of per capita output. This implies that the association between income and welfare may not be as strong as it is usually assumed to be. The optimal allocation of time among activities depends on some of the parameters and the marginal product of physical capital per capita.     

Efficiency‐adjusted public capital,capital grants,and growth

A debate on whether capital grants, and especially European Union (EU) funds, actually contribute to growth has gained prominence lately. This article empirically assesses the relationship between the quality of public investment, capital grants, and growth in a sample of 43 emerging and peripheral economies over 1991–2015. To this end, the contribution of public capital to growth is estimated using efficiency‐adjusted public capital stock series, which reflects the quality of public investment management institutions. In addition, the determinants of effective public investment are analyzed. The results suggest that capital grants contribute positively to effective public investment, and the latter is significant in explaining variations in economic growth. Finally, the article illustrates the impact of raising EU funds absorption on potential growth in emerging and peripheral EU countries.     

Patent protection, capital accumulation, and economic growth

In this paper, we investigate how strengthening patent protection affects economic growth in an endogenous growth model where both innovation and capital accumulation are the driving forces of economic growth. In this model, stronger patent protection raises the profit flow obtained by innovation but reduces the factor demand for capital. This process accelerates innovation but discourages capital accumulation, and because of the negative effect on economic growth through reducing capital accumulation, strengthening patent protection may then impede economic growth. This result contrasts with earlier studies where innovation is the sole driving force for economic growth. Moreover, in an open economy model where technologies are transferred and capital is imported from abroad, the strictest protection of patents enhances technology adoption from abroad but impedes capital accumulation, and thus, the relation derived between patent protection and output can be nonmonotone. In terms of implications, these findings may be able to partly explain the complex relation found by some empirical studies in this area.     

Crises and human capital accumulation

Abstract.  This paper studies the effects of crises on human capital formation. Theoretically, a crisis undermines total factor productivity, which reduces the return to working and to accumulating physical capital. If the crisis is temporary, young agents will study now and work later. Human capital rises. To test our model we rely on inflation crises as our main empirical proxy. Using GMM panel procedures, our analysis for 86 countries in 1970–2000 confirms the positive effects of crises on human capital. Our main findings survive several robustness tests. JEL classification: E31, D90     

Migration, human capital accumulation and economic development

We study how the possibility of migration changes the composition of human capital in sending countries, and how this affects development. In our model, growth is driven by productivity growth, which occurs via imitation or innovation. Both activities use the same types of skilled labour as input, albeit with different intensities. Heterogenous agents accumulate skills in response to economic incentives. Migration distorts these incentives, and the accumulation of human capital. This slows down, or even hinders, economic development. The effect is stronger, the farther away the country is from the technological frontier.     

Migration,human capital accumulation and economic development

We study how the possibility of migration changes the composition of human capital in sending countries, and how this affects development. In our model, growth is driven by productivity growth, which occurs via imitation or innovation. Both activities use the same types of skilled labour as input, albeit with different intensities. Heterogenous agents accumulate skills in response to economic incentives. Migration distorts these incentives, and the accumulation of human capital. This slows down, or even hinders, economic development. The effect is stronger, the farther away the country is from the technological frontier.     

Optimal accumulation in an endogenous growth setting with human capital

This paper considers a three-overlapping-generations model of endogenous growth wherein human capital is the engine of growth. It first contrasts the laissez-faire and the optimal solutions. Three possible accumulation regimes are distinguished. Then it discusses a standard set of tax-transfer instruments that allow for decentralization of the social optimum. Within the limits of our model, the rationale for the standard pattern of intergenerational transfers (the working-aged financing the education of the young and the pension of the old) is seriously questioned. On pure efficiency grounds, the case for generous public pensions is rather weak.     

Human capital accumulation in R&D-based growth models

This paper develops a model that reproduces the essential aspects of the recent ICT-based economy using the framework of endogenous growth theory in which a central role is played by human capital accumulation. In particular, it considers a multi-sectoral growth model in discrete time with infinite horizon, endogenous growth, embodied technological progress, horizontal differentiation and “lab-equipment” specification of R&D, and with human capital accumulation (represented by the fact that households devote a fraction of their time to schooling), in order to take into account the crucial role of the latter when new technologies are present. In this model it is possible to obtain some important results, both analytically and through simulations, either in the case of constant productivity of schooling and in the case in which this productivity is a function of technological progress. The first conclusion is that the productivity of schooling affects the long run growth of the economy, contrary to the productivities of the other sectors, hence in this model human capital accumulation is the true engine of growth. It is then possible to study the reaction of the economy to different types of shocks, and to compare the results with the empirical evidence. The conclusion is that the model is able to reproduce such evidence, suggesting that the interaction between ICT and human capital is one of the drivers of the recent economic performance.     

Efficiency change,technological change and capital accumulation in Italian regions: a sectoral study

This paper examines the sources of labour productivity in the Italian regions during the period 1980–2004. Five economic sectors are investigated using data envelopment analysis (DEA) and taking into account productive specialisation and sector inefficiencies. Labour productivity change is decomposed into five components by means of Malmquist productivity indices: intra-sector efficiency change, composition efficiency change, input-biased technical change, magnitude component technical change and capital accumulation. Using bootstrap procedure, the components of labour productivity changes are statistically tested. Efficiency analysis shows that productive specialisation is not a source of inefficiency and efficiency gains can be obtained by sector-specific policies. Thus, it is possible to obtain improvements in efficiency in each sector of activity rather than reallocating resources among sectors. The results of the decomposition by sectors reveal heterogeneous sources of growth. The total economy has shown evidence of non-neutral technical change and, it has been found that agriculture, industry and construction experienced capital using technical change. The analysis of the decomposition of the labour productivity growth is complemented by an analysis of β-convergence.     

R&D‐induced Growth in the OECD?

The study uses aggregate and manufacturing sector data for a group of ten OECD countries for the period 1971 to 1995 to estimate a system of two equations implied by a model of R&D‐induced growth in steady state. These equations relate R&D intensity to productivity growth and the latter to output growth. The author finds evidence of a positive impact of aggregate R&D intensity on the growth rates of productivity and output. The null hypothesis that growth is not induced by R&D is rejected in favor of the Schumpeterian endogenous growth framework without scale effects. The R&D impact for the aggregate economy is distinctly larger than for the manufacturing sector. Finally, an extension of the empirical model shows that openness has a positive impact on productivity growth.     

Cash-in-advance constraint,optimal monetary policy,and human capital accumulation

This paper investigates optimal monetary policy in an overlapping-generations model with endogenous growth fueled by the accumulation of human capital and under a cash-in-advance constraint. We consider the case where the government finances public education fully by seigniorage. Three main results are obtained. First, there exists an optimal money growth rate that maximizes the economic growth rate along the steady growth path. Second, on this path, the Laffer curve of seigniorage takes the maximum. Finally, the money growth rate for maximizing seigniorage along the steady growth path, which also leads to maximization of the economic growth rate, is lower than that for maximizing seigniorage in the present period.     

Return migration, human capital accumulation and the brain drain

In this paper we present a model that explains migrations as decisions that respond to where human capital can be acquired more efficiently, and where the return to human capital is highest. The basic framework is a dynamic Roy model in which a worker possesses two distinct skills that can be augmented by learning by doing. There are different implicit prices, in different countries and different rates of skill accumulation. Our analysis contributes to the literature on the selection of immigrants and return migrants by offering a richer framework that may help to accommodate selection of emigrants and return migrants that are not immediately compatible with the one-dimensional skill model. Our analysis also has implications for the debate on brain drain and brain gain. In the two skills model presented here, return migration can lead to a mitigation of the brain drain, or even the creation of a “brain gain”, where those who return bring the home country augmented local skills.