Financial Literacy, Human Capital and Long-Run Economic Growth

Alberto Bucci (alberto.bucci@unimi.it), Riccardo Calcagno, Simone Marsiglio and Tiago Sequeira
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Riccardo Calcagno: Department of Management and Production Engineering, Polytechnic University of Turin

No 2022-08, CeBER Working Papers from Centre for Business and Economics Research (CeBER), University of Coimbra

Abstract: We extend a two-sector endogenous growth model based on human capital accumulation along two different directions. First, by postulating that individuals may invest time-resources not only in the accumulation of human capital (general knowledge) but also in the accumulation of financial literacy (specific financial knowledge). Second, we maintain that the efficiency with which savings are transferred intertemporally may improve over time, e.g. through the presence of a financial system. We use the model to analyze the relationship between financial literacy and economic growth in the long run. We show that the properties of the balanced growth path equilibrium critically depend on how human capital and financial literacy affect the efficiency of the financial system. Moreover, finance promotes long-run economic growth through two alternative channels, driven either by dynamics of financial returns or by human capital accumulation, respectively. By calibrating the model to the US economy over the 1950-2019 period, we quantitatively assess the effect of financial literacy on long-term growth and the relative magnitude of the two channels.

Keywords: Economic Growth; Financial Literacy; Financial Return; Human Capital. (search for similar items in EconPapers)
JEL-codes: G53 O40 O41 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2022-12
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-fle, nep-gro, nep-his, nep-inv and nep-mac
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