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A two-sector OLG economy: economic growth and demographic behaviour

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  • Fanti, Luciano
  • Gori, Luca

Abstract

We analyse an overlapping generations economy with two sectors of production: a capital-intensive commodity sector and a labour-intensive services sector. First, we consider an economy with exogenous population and study the effects of a change in the individual preference for old-aged services that causes a reallocation of labour between sectors on per capita income. Then, we compare the results with the standard Diamond (1965) style one-sector economy. Second, we endogenise fertility founding that a reallocation of labour in favour of the services sector causes an additional beneficial effect on per capita income with respect to the model with exogenous population. Third, we further introduce endogenous lifetime through public health investments, showing that multiple regimes of development may exist. In this context, the a rise in the preference for old-aged services may help escaping from poverty.

Suggested Citation

  • Fanti, Luciano & Gori, Luca, 2009. "A two-sector OLG economy: economic growth and demographic behaviour," MPRA Paper 18869, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:18869
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    References listed on IDEAS

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    1. K Blackburn & H Issa, 2002. "Endogenous Life Expectancy in a Simple Model of Growth," Economics Discussion Paper Series 0217, Economics, The University of Manchester.
    2. Patricia Apps & Ray Rees, 2004. "Fertility, Taxation and Family Policy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(4), pages 745-763, December.
    3. Luciano Fanti & Luca Gori, 2009. "Endogenous fertility, endogenous lifetime and economic growth: the role of health and child policies," Discussion Papers 2009/91, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    4. Bas van Groezen & Lex Meijdam & Harrie A. A. Verbon, 2005. "Serving the old: ageing and economic growth," Oxford Economic Papers, Oxford University Press, vol. 57(4), pages 647-663, October.
    5. Eckstein, Zvi & Wolpin, Kenneth I., 1985. "Endogenous fertility and optimal population size," Journal of Public Economics, Elsevier, vol. 27(1), pages 93-106, June.
    6. Gary S. Becker, 1960. "An Economic Analysis of Fertility," NBER Chapters, in: Demographic and Economic Change in Developed Countries, pages 209-240, National Bureau of Economic Research, Inc.
    7. Luciano Fanti & Luca Gori, 2014. "Endogenous fertility, endogenous lifetime and economic growth: the role of child policies," Journal of Population Economics, Springer;European Society for Population Economics, vol. 27(2), pages 529-564, April.
    8. Bas Van Groezen & Lex Meijdam & Harrie A. A. Verbon, 2007. "The Case For Pay‐As‐You‐Go Pensions In A Service Economy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(2), pages 151-165, May.
    9. Chakraborty, Shankha, 2004. "Endogenous lifetime and economic growth," Journal of Economic Theory, Elsevier, vol. 116(1), pages 119-137, May.
    10. Charles I. Jones, 2003. "Growth, capital shares, and a new perspective on production functions," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
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    12. Bas Van Groezen & Lex Meijdam & Harrie A. A. Verbon, 2007. "Increased Pension Savings: Blessing or Curse? Social Security Reform in a Two‐Sector Growth Model," Economica, London School of Economics and Political Science, vol. 74(296), pages 736-755, November.
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    More about this item

    Keywords

    Fertility; Life expectancy; OLG model; Public health expenditure; Services market;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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