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Financial Literacy, Human Capital and Long-Run Economic Growth

Author

Listed:
  • Alberto Bucci

    (Department of Economics, Management and Quantitative Methods, University of Milan, and ICEA (International Center for Economic Analysis, Canada)

  • Riccardo Calcagno

    (Department of Management and Production Engineering, Polytechnic University of Turin)

  • Simone Marsiglio

    (Department of Economics and Management, University of Pisa)

  • Tiago Neves Sequeira

    (University of Coimbra, CeBER and Faculty of Economics)

Abstract

We extend a two-sector endogenous growth model based on human capital accumulation along two different directions. First, by postulating that individuals may invest time-resources not only in the accumulation of human capital (general knowledge) but also in the accumulation of financial literacy (specific financial knowledge). Second, we maintain that the efficiency with which savings are transferred intertemporally may improve over time, e.g. through the presence of a financial system. We use the model to analyze the relationship between financial literacy and economic growth in the long run. We show that the properties of the balanced growth path equilibrium critically depend on how human capital and financial literacy affect the efficiency of the financial system. Moreover, finance promotes long-run economic growth through two alternative channels, driven either by dynamics of financial returns or by human capital accumulation, respectively. By calibrating the model to the US economy over the 1950-2019 period, we quantitatively assess the effect of financial literacy on long-term growth and the relative magnitude of the two channels.

Suggested Citation

  • Alberto Bucci & Riccardo Calcagno & Simone Marsiglio & Tiago Neves Sequeira, 2022. "Financial Literacy, Human Capital and Long-Run Economic Growth," CeBER Working Papers 2022-08, Centre for Business and Economics Research (CeBER), University of Coimbra.
    • Handle: RePEc:gmf:papers:2022-08
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    More about this item

    Keywords

    Economic Growth; Financial Literacy; Financial Return; Human Capital.;
    All these keywords.

    JEL classification:

    • G53 - Financial Economics - - Household Finance - - - Financial Literacy
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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