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Bank of Finland's long-run forecast framework with human capital

Author

Listed:
  • Kokkinen, Arto
  • Obstbaum, Meri
  • Mäki-Fränti, Petri

Abstract

Population ageing constitutes a central challenge to Finland. Understanding the Finnish economy's likely future trajectory and the key sources of growth is important for the design of policies to counteract these adverse long-term trends. For this purpose, we develop a novel long-run forecast framework based on enodogenous growth theory with human and fixed capital. A central result is a pronounced projected decrease in human capital, substantially weighing on the long-run GDP outlook for Finland. To revert these trends substantial policy efforts are needed. Unless the decline in human capital can be prevented by increasing fertility, skilled immigration, education or employment, even reaching a growth rate of one per cent after the 2040s would require significant measures to increase new fixed capital investments with new technology.

Suggested Citation

  • Kokkinen, Arto & Obstbaum, Meri & Mäki-Fränti, Petri, 2021. "Bank of Finland's long-run forecast framework with human capital," BoF Economics Review 10/2021, Bank of Finland.
    • Handle: RePEc:zbw:bofecr:102021
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    File URL: https://www.econstor.eu/bitstream/10419/248454/1/178242024X.pdf
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    References listed on IDEAS

    as
    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
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    3. Romer, Paul M, 1987. "Growth Based on Increasing Returns Due to Specialization," American Economic Review, American Economic Association, vol. 77(2), pages 56-62, May.
    4. Erwin Diewert, 2009. "The aggregation of capital over vintages in a model of embodied technical progress," Journal of Productivity Analysis, Springer, vol. 32(1), pages 1-19, August.
    5. Kausik Chaudhuri & Pushkar Maitra, 2008. "School Attainment, Completion, and Economic Development: A Cross‐Country Analysis," Review of Development Economics, Wiley Blackwell, vol. 12(1), pages 90-105, February.
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    Cited by:

    1. Mikko Myrskylä & Julia Hellstrand & Sampo Lappo & Angelo Lorenti & Jessica Nisén & Ziwei Rao & Heikki Tikanmäki, 2024. "Declining fertility, human capital investment, and economic sustainability," MPIDR Working Papers WP-2024-002, Max Planck Institute for Demographic Research, Rostock, Germany.

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    More about this item

    Keywords

    Forecasting; GDP; Labour productivity; Human capital; Modern growth theory;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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