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American Economic Review: Vol. 95 No. 5 (December 2005)

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Human Capital Formation, Life Expectancy, and the Process of Development

Article Citation

Cervellati, Matteo, and Uwe Sunde. 2005. "Human Capital Formation, Life Expectancy, and the Process of Development." The American Economic Review, 95(5): 1653-1672.

DOI: 10.1257/000282805775014380

Abstract

We provide a unified theory of the transition in income, life expectancy, education, and population size from a nondeveloped environment to sustained growth. Individuals optimally trade off the time cost of education with its lifetime returns. Initially, low longevity implies a prohibitive cost for human capital formation for most individuals. A positive feedback loop between human capital and increasing longevity, triggered by endogenous skill-biased technological progress, eventually provides sufficient returns for widespread education. The transition is not based on scale effects and induces population growth despite unchanged fertility. A simulation illustrates that the dynamics fit historical data patterns.

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Authors

Cervellati, Matteo
Sunde, Uwe


American Economic Review



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