Human Capital Formation, Life Expectancy, and the Process of Development

American Economic Review · 2005 · Volume 95 · Issue 5

Abstract

We provide a unified theory of the transition in income, life expectancy, education, and population size from a nondeveloped environment to sustained growth. Individuals optimally trade off the time cost of education with its lifetime returns. Initially, low longevity implies a prohibitive cost for human capital formation for most individuals. A positive feedback loop between human capital and increasing longevity, triggered by endogenous skill-biased technological progress, eventually provides sufficient returns for widespread education. The transition is not based on scale effects and induces population growth despite unchanged fertility. A simulation illustrates that the dynamics fit historical data patterns.

Keywords

Demographic Trends, Macroeconomic Effects, and Forecasts, Human Capital, Skills, Occupational Choice, Labor Productivity, Economic History: Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy: Europe: Pre-1913, and Philanthropy: Europe: 1913-

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