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Demographic Change, Human Capital and Endogenous Growth

Alexander Ludwig (), Thomas Schelkle () and Edgar Vogel

No 08-43, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: This paper employs a large scale overlapping generations (OLG) model with endogenous education to evaluate the quantitative role of human capital adjustments for the economic consequences of demographic change. We find that endogenous human capital formation is an important adjustment mechanism which substantially mitigates the macroeconomic impact of demographic change. Welfare gains from demographic change for newborn households are approximately three times higher when households endogenously adjust their education. Low ability agents experience higher welfare gains. Endogenous growth through human capital formation is found to increase the long-run growth rate in the economy by 0.2-0.4 percentage points.

Pages: 50 pages
Date: 2007-08-10
Note: We thank Dirk Krüuger, Wolfgang Kuhle and Matthias Weiss for helpful discussions and several seminar participants at the University Frankfurt, University of Mannheim and at the 13th International Conference of the Society for Computational Economics in Montreal for helpful comments. Financial support by the German National Research Foundation (DFG) through SFB 504, the State of Baden-Württemberg and the German Insurers Association (GDV) is gratefully acknowledged.
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