Human Capital, Knowledge, and Economic Growth

In this chapter Human Capital, Knowledge, and Economic Growth, examines interactions between wealth accumulation, change in human capital, and knowledge growth. Physical capital, human capital, and knowledge are three important determinants of economic growth. Physical capital accumulation is mainly through households’ saving, which delays their current consumption. It is necessary to model trade-offs between saving and consumption in order to follow changes of physical capital. Human capital accumulation is usually assumed due to investment in education, while knowledge due to research. Both education and research use limited resources of households and the government. This chapter synthesizes three key approaches in modern theory of economic theory. They are respectively the Solow model, the Uzawa-Lucas model, and basic ideas in Romer’s model. Section 16.1 constructs the model with endogenous wealth accumulation, human capital development, and knowledge growth. Section 16.2 shows some properties of the model and simulates the model. Section 16.3 examines the impact of a rise in the propensity to receive education on the dynamic behavior of the system. Section 16.4 studies the effects of a rise in the propensity to save. Section 16.5 shows how the system is affected when human capital is more effectively applied. Section 16.6 examines the effects of a rise in the tax rate on the industrial sector on how the system moves. Section 16.7 studies the impact of an increase in the tax rate on the wage rate. Section 16.8 follows the motion of the system when the knowledge stock has stronger impact on creativity. Section 16.9 shows how the behavior of the dynamic system is changed when creativity is enhanced. Section 16.10 concludes the chapter.