On human capital and economic growth with random technology shocks

Alberto Bucci (), Cinzia Colapinto (), Martin Forster and Davide La Torre

Departmental Working Papers from Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano

Abstract: We embed the Uzawa-Lucas human capital accumulation technology into the Mankiw-Romer-Weil exogenous growth model. The paper is divided into two parts. In the first part we assume that the rate of technological progress is exogenous and deterministic and study the local dynamics of the model around its steady-state equilibrium. The first order conditions lead to a system of four nonlinear differential equations. By reducing the dimension of the system to three, we find that the equilibrium is a saddle point. If the equations system is attacked in its original dimension, and by making use of an arbitrage condition, we prove that the equilibrium is unstable. In the second part of the paper technology is assumed to be subject to random shocks driven by a geometric Brownian motion. Using the Hamilton-Jacobi-Bellman equation, and through numerical simulations, we discuss the effects of technology shocks on the optimal policies of consumption and the allocation of human capital across sectors.

Keywords: Economic Growth; Physical and Human Capital Accumulation; Technology Shocks (search for similar items in EconPapers)
JEL-codes: C61 C63 J24 O33 O41 (search for similar items in EconPapers)
Date: 2008-11-05
New Economics Papers: this item is included in nep-dev, nep-dge and nep-hrm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:mil:wpdepa:2008-36

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