PHYSICAL AND HUMAN CAPITAL INVESTMENT: RELATIVE SUBSTITUTES IN THE ENDOGENOUS GROWTH PROCESS

Jorge Durán and Alexandra Rillaers ()
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Alexandra Rillaers: Universidad de Alicante

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: This paper aims at studying the interaction between growth of real output and human capital accumulation when education requires investment of physical resources. To this end we investigate the aggregate implications of individual specific uncertainty about returns to investment in education in the absence of insurance markets. We do so in a general equilibrium OLG model in which physical resources must be devoted to education in order to accumulate human capital. We find that uncertainty with incomplete financial markets may strongly affect individual behavior but not the aggregate of the economy: different degrees of uncertainty will induce different intensities of human to physical capital but will not have a significant impact on the long run growth rate of the economy. This framework allows us to conclude that investing less in education in relative terms does not necessarily lead to less growth: the accumulation of physical and human capital display some degree of substitutability as an engine for long run growth.

Keywords: Overlapping generations; Investment in education; Uninsured shocks; Human capital; Sustained growth. (search for similar items in EconPapers)
JEL-codes: E13 I29 O41 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2002-10
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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2002-18

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