Human Capital Formation, Life Expectancy, and the Process of Development

Matteo Cervellati () and Uwe Sunde ()

American Economic Review, 2005, vol. 95, issue 5, pages 1653-1672

Abstract: 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.

Date: 2005
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