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

Marion Davin (), Karine Gente () and Carine Nourry

No 1330, AMSE Working Papers from Aix-Marseille School of Economics, France

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.

Keywords: Endogenous growth; social optimum; two-sector model; factor intensity differential (search for similar items in EconPapers)
JEL-codes: E20 H52 O41 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2013-05, Revised 2013-05
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Working Paper: Should a Country Invest more in Human or Physical Capital? A Two-Sector Endogenous Growth Approach (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:aim:wpaimx:1330

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