Health and Knowledge Externalities: Implications for Growth and Public Policy
Pierre-Richard Agénor ()
Centre for Growth and Business Cycle Research Discussion Paper Series from Economics, The Univeristy of Manchester
Interactions between knowledge and health are studied in a three-period overlapping generations model with health persistence. Reproductive agents face a non-zero probability of death in adulthood. In addition to working, adults allocate time to child rearing. Growth dynamics are shown to depend in critical ways on the externalities associated with knowledge and health. Depending on the strength of these externalities, the best policy to improve education outcomes may be to spend relatively more on children's health. Trade-offs between education and health spending can be internalized by setting the optimal composition of expenditure so as to maximize the growth rate. With an endogenous adult survival rate, multiple growth paths may emerge. A reallocation of public spending from education to health may shift the economy from a low-growth equilibrium to a high-growth path.
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