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Growth and bubbles: Investing in human capital versus having children

Author

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  • Xavier Raurich
  • Thomas Seegmuller

    (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract

As it is documented, households' investment in their own education (human capital) is negatively related to the number of children individuals will have and requires some loans to be financed. We show that this contributes to explain episodes of bubbles associated to higher growth rates. This conclusion is obtained in an overlapping generations model where agents choose to invest in their own education and decide their number of children. A bubble is a liquid asset that can be used to finance either education or the cost of rearing children. The time cost of rearing children plays a key role in the analysis. If the time cost per child is sufficiently high, households have only a small number of children. Then, the bubble has a crowding-in effect because it is used to provide loans to finance investments in education. On the contrary, if the time cost per child is low enough, households have a large number of children. Then, the bubble is mainly used to finance the total cost of rearing children and has a crowding-out effect on investment. Therefore, the new mechanism we highlight shows that a bubble enhances growth if the economy is characterized by a high rearing time cost per child.

Suggested Citation

  • Xavier Raurich & Thomas Seegmuller, 2019. "Growth and bubbles: Investing in human capital versus having children," Post-Print hal-02111823, HAL.
    • Handle: RePEc:hal:journl:hal-02111823
    DOI: 10.1016/j.jmateco.2019.01.007
    Note: View the original document on HAL open archive server: https://amu.hal.science/hal-02111823
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    Keywords

    Bubble; Sustained growth; Fertility; Human capital;
    All these keywords.

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