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This edited collection explores the links between human capital (both in the form of health and in the form of education), demographic change, and economic growth. Using empirical as well as theoretical perspectives, the authors investigate several important issues in the context of human capital, namely population ageing, inequality, public policy, and long-term economic development. Ultimately, they demonstrate that the accumulation of human capital is of crucial importance to long-run economic growth.



Human Capital in the Form of Education, Demographic Change, and Their Economic Implications


Chapter 1. The Non-linearity in the Relationship Between Human Capital and Growth

This chapter empirically explores how institutions, human capital and gender interact and together influence growth. Our contribution is based on the threshold regression model by Hansen (Econometrica, 68, 575–603, 2000) in the version by Kourtellos et al. (2016), which allows for endogeneity in the threshold variable. Through all our regressions the dependent variable is per capita GDP growth, while human capital, disaggregated by gender, is the threshold variable. Results confirm the presence of non-linearities in the relationship between human capital and growth, while showing the importance that institutions and gender have on it. Findings also suggest that female education has a direct effect on GDP growth, while male education has an indirect effect, which is linked to institutional quality.
Alessandra Pelloni, Thanasis Stengos, Fabrizio Valenti

Chapter 2. Optimal Life-Cycle Education Decisions of Atomistic Individuals

We analyze the optimal life-cycle education decision of a single atomistic individual and show that the standard result of part-time education and part-time work throughout the life-cycle holds only under very special and unrealistic assumptions. Once these assumptions are relaxed, different education strategies become optimal. These range from switching back and forth between work and education (educational leave) to full-time education at the beginning of life and full-time work when older (classical schooling). The resulting strategies for investing in education are better aligned with the observable pattern of educational investments over the life cycle. The particular path chosen by individuals then depends on other aspects, e.g., on the individual’s lifetime horizon or on nonlinearities in human capital accumulation with respect to time invested in education.
Bernhard Skritek, Jesus Crespo Cuaresma, Arkadii V. Kryazhimskii, Klaus Prettner, Alexia Prskawetz, Elena Rovenskaya

Chapter 3. Childlessness and Economic Development: A Survey

This chapter shows why, beyond average fertility, childlessness matters in itself. Childlessness reacts to economic incentives in a peculiar way, which cannot be described by usual economic models of fertility. We make a distinction between childlessness due to poverty and childlessness due to economic opportunities. It allows to better understand the dynamics of childlessness along the history but also why the extensive margin of fertility (childlessness) does not adjust to economic shocks and development policies in the same way as the intensive margin (number of children of mothers). Introducing marriage into this framework provides new insights: higher educational homogamy per se decreases childlessness as it favors marriage. Nevertheless, because educational homogamy is most of the time accompanied by a rise in female education, it may also be associated with increases in childlessness in the data.
Thomas Baudin, David de la Croix, Paula E. Gobbi

Chapter 4. Demographic Change, Wage Inequality, and Technology

This chapter investigates the consequences of population ageing and demographic change for the long-run performance of the economies from the perspective of wage inequality and technology intensity. We devise two alternative models of endogenous growth with demographic variables. In the baseline model, a lower birth rate or a higher mortality rate implies a lower share of R&D workers in total high-skilled labour and a lower skill premium. However, the alternative directed technical change model may imply a rising skill premium depending on the elasticity of substitution. Quantitatively, it is shown that the decline in the birth rate and, consequently, ageing may help explain the increase in the skill premium and the decline in the R&D intensity observed in the end of the XXth century.
Oscar Afonso, Pedro Mazeda Gil, Pedro Cunha Neves, Tiago Neves Sequeira

Chapter 5. The Demographic Metabolism Model of Human Capital Formation

This chapter transforms the age-old wisdom that societies change through generational replacement into a formalized model that allows for quantitative forecasts of such societal changes for decades into the future. Using the term “Demographic Metabolism” introduced by Ryder, we show how the blend of this concept with the methods of multi-dimensional population dynamics results in a sophisticated model with strong predictive power. We evaluate this model empirically revisiting its application to forecasting future population distributions by age, sex, and level of educational attainment and investigate the implications of different scenarios in terms of future vulnerability to climate change, as well as the development outlook in the Democratic Republic of Congo.
Erich Striessnig

Human Capital in the Form of Health, Its Economic Implications, and the Economic Policies for a Healthier World


Chapter 6. Health and Income: Theory and Evidence for OECD Countries

In this chapter we examine whether the Solow growth model is consistent with the international variation in the standard of living once investments in education and health are explicitly and simultaneously taken into account. Using the sample of OECD countries, we provide evidence that the level of per capita income is positively affected by the population’s health level, here proxied by the life expectancy at birth. Public expenditure on health affects indirectly the level of per capita income through its positive effect on life expectancy. Using a Finite Mixture approach, we also show that richer countries are those in which the impact of unobserved factors on the level of per capita income is stronger.
Alberto Bucci, Lorenzo Carbonari, Giovanni Trovato

Chapter 7. Health Spending, Education and Endogenous Demographics in an OLG Model

We present a model of endogenous aging with public expenditure on health and pensions financed by an income tax. We show that government policies on health and pensions might lift an economy from a low to a high income steady state. In particular, the impact of an increase in the income tax is non-monotonic and depends on the initial levels of income and longevity: it is positive at low levels, and negative at high levels. On the other hand, a change in the allocation of public spending from social security benefits to health expenditures, without varying the tax rate, always increases income, even though pension benefits might decrease, and the problem of population aging could worsen.
Giam Pietro Cipriani, Tamara Fioroni

Chapter 8. Health and Knowledge Externalities: Implications for Growth and Public Policy

Interactions between knowledge and health are studied in a three-period overlapping generations model with health persistence. Agents face a non-zero probability of death in adulthood. In addition to working, adults allocate time to child rearing. Growth dynamics depend in important ways on the externalities associated with knowledge and health. Depending on the strength of these externalities, increases in government spending on education or health (financed by a cut in unproductive spending) may have ambiguous effects on growth. Trade-offs between education and health spending can be internalized by solving for the growth-maximizing expenditure allocation. 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 equilibrium.
Pierre-Richard Agénor

Chapter 9. Population and the Environment: The Role of Fertility, Education and Life Expectancy

This chapter explores the interplay between population and environmental quality. After reviewing the existing literature, we set up a theoretical framework suitable to analyze two major endogenous forces of demographic change—fertility and life expectancy—and their dynamic interaction with human capital and environmental conditions. We thus revisit and encompass in a unified model some key results of the literature, and gain new insight on the consequences of policy intervention on environmental dynamics and economic development. In particular, we highlight (1) the possible perverse effects of pollution control, (2) a demographic explanation of the environmental Kuznets curve, (3) the opportunity of relying on educational subsidies to alleviate the pressure on natural resources, and (4) the existence of poverty traps related to human capital and environmental quality.
Fabio Mariani, Agustín Pérez-Barahona, Natacha Raffin

Chapter 10. HIV/AIDS, Demography and Development: Individual Choices Versus Public Policies in SSA

Despite the increasing rate of diffusion of effective therapies, the battle against HIV/AIDS in Sub-Saharan Africa (SSA) is far from being over. Three main challenges are that the epidemics might paralyse or reverse the fertility transition, the expansion of the resources needed to finance the fight against HIV, and the emerging resistance to anti-retroviral treatments. This research proposes a UGT-like model showing the complexity of the interplay amongst the (macro)economy, the epidemics, their endogenous feedback on mortality and fertility and the central role of policy actions aimed to fight HIV. The disease-induced increase in adult mortality can hamper economic development by its upward pressure on the precautionary demand for children and downward pressure on education. This can dramatically reduce physical and human capital accumulation.
Luca Gori, Piero Manfredi, Mauro Sodini


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