Longevity and Human Capital Investment

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Questions and Answers

Within the context of the Ben-Porath model, how does increased longevity primarily influence an individual's decision regarding human capital investment?

  • It has no effect on human capital investment decisions.
  • It shifts investment from education to direct market work, maximizing immediate earnings
  • It encourages greater investment in human capital due to an extended period to recoup the investment. (correct)
  • It decreases human capital investment due to a shorter time horizon for returns.

According to the research using data from U.S. cohorts of men born 1840-1970, what key aspect must be considered when evaluating the effect of longevity on lifetime labor supply, according to Hazan (2009)?

  • The fluctuations in the stock market and their impact on retirement funds.
  • The impact of technological advancements on job availability over time.
  • The relative increase of benefits over costs associated with education expansions. (correct)
  • The number of years spent in formal education, irrespective of labor market participation.

What critical assumption within the Ben-Porath model needs to be considered to reconcile the relationship between longevity and labor supply?

  • Utilizing a realistic survival law and considering variations in the intensive margin of labor supply. (correct)
  • Assuming that all individuals have equal access to education and healthcare.
  • Ignoring variations in the intensity of labor supply.
  • Assuming a constant retirement age across all cohorts.

How does the 'rectangularization' of the survival law, as referenced by Cervellati and Sunde (2013), conceptually alter the conventional understanding of longevity's impact on economic behavior?

<p>It implies that individuals are living to a more uniform, advanced age, which could change investment and labor decisions. (B)</p> Signup and view all the answers

If a government aims to increase both longevity and human capital investment, which policy would be the MOST effective based on the presented economic models?

<p>Policies that reduce the cost of education relative to its benefits, such as tuition subsidies or grants. (D)</p> Signup and view all the answers

What key factors determine the timing of the demographic transition according to the content?

<p>Heterogeneity in extrinsic mortality and demand for human capital. (C)</p> Signup and view all the answers

Which of the following is the most accurate description of the economic development disparities observed globally?

<p>Substantial disparities exist across countries in economic development, demographics, institutions, and health. (A)</p> Signup and view all the answers

How do demographic dynamics influence development and inequality?

<p>They are crucial in understanding development, where health/longevity affects individual decisions and fertility impacts wage structure. (C)</p> Signup and view all the answers

Based on the data presented, which factor does not contribute significantly to disparities in economic development?

<p>Homogeneity in life expectancy and health outcomes. (A)</p> Signup and view all the answers

Which of the following values represents a country with a relatively high level of democracy according to the Polity-V data?

<p>A score of 7, indicating strong democratic institutions. (A)</p> Signup and view all the answers

What is a primary consequence of long-run economic growth that leads to discussions about institutional change?

<p>Inequality dynamics. (C)</p> Signup and view all the answers

What aspect of individual intertemporal decisions is most influenced by health and longevity?

<p>Education investment. (D)</p> Signup and view all the answers

If a country transitions from a fertility rate of 5.0 to 2.0, what broad implication might this demographic shift have, assuming other factors remain constant?

<p>The country may face challenges related to an aging population and potential labor shortages in the long term. (A)</p> Signup and view all the answers

How do inclusive institutions potentially foster economic development compared to extractive ones?

<p>Inclusive institutions promote broader participation, protect property rights, and encourage investment and innovation. (D)</p> Signup and view all the answers

Which of the following reflects evidence supporting the role of demographic transition timing, as indicated in the content?

<p>Historical patterns of technology adoption. (B)</p> Signup and view all the answers

Which 'global mega trend' is most likely to exacerbate existing inequalities if not properly addressed through policy and innovation?

<p>Technological Advancement (C)</p> Signup and view all the answers

What is a common theme in debates regarding the income-democracy nexus?

<p>Whether income causes democracy, and whether democracy causes growth. (B)</p> Signup and view all the answers

According to the material, what is closely linked to heterogeneous demographics in the context of global development patterns?

<p>Global development patterns. (D)</p> Signup and view all the answers

Consider a country with low tertiary education rates and high fertility rates. What long-term economic challenges might it face compared to a country with high tertiary education and low fertility?

<p>A higher dependency ratio, slower economic growth, and challenges in adapting to technological advancements. (D)</p> Signup and view all the answers

How might democratic reversals impact a country's long-term economic development?

<p>By undermining the rule of law and increasing corruption, which discourages investment and hinders economic growth. (C)</p> Signup and view all the answers

In models of institutional change, what is the typical basis for these changes?

<p>Inequality and redistributive conflict. (D)</p> Signup and view all the answers

According to Acemoglu and Johnson's research in the JPE 2007, what type of evidence regarding the relationship between life expectancy and economic growth did they find?

<p>Contradictory evidence from panel-IV studies compared to cross-country aggregate data. (A)</p> Signup and view all the answers

In the Solow-type closed economy model, what does the parameter $\eta$ represent in the context of life expectancy and growth?

<p>The elasticity of human capital (h) with respect to life expectancy (T). (B)</p> Signup and view all the answers

In the Solow-type model, if an increase in life expectancy ($T$) leads to a decrease in population ($N$), while other factors remain constant, what would be the likely impact on income per capita, assuming $\alpha = 0.5$, $\theta = 0.2$, $\eta = 0.3$, and $\lambda = -0.1$?

<p>Income per capita would increase. (D)</p> Signup and view all the answers

Consider the equation $\ln y_t = \alpha \ln A_t + \alpha \ln h_t - (1 - \alpha) \ln N_t + B_t$. Which of the following best describes the implications of a higher $N_t$ (population) assuming $\alpha < 1$?

<p>A higher $N_t$ will always decrease income per capita $y_t$. (B)</p> Signup and view all the answers

In the context of the 2-way fixed effects model, what is the purpose of including $\zeta_i$ and $\mu_t$ in the equation $\ln y_{it} = \pi \ln T_t + \zeta_i + \mu_t + u_{it}$?

<p>$\zeta_i$ controls for time-invariant country-specific effects, and $\mu_t$ controls for country-invariant time-specific effects. (D)</p> Signup and view all the answers

Based on the data presented, what general trend is observed regarding the share of individuals with some formal education between 1960 and 2000?

<p>A general increase in the share of educated individuals. (A)</p> Signup and view all the answers

According to the 'Preston Curve', what relationship is generally observed between life expectancy at birth and GDP per capita?

<p>A positive correlation: higher GDP per capita is associated with higher life expectancy, but with diminishing returns. (D)</p> Signup and view all the answers

How did the distribution of life expectancy at birth change between 1960 and 2000, according to the provided data?

<p>The distribution shifted towards higher life expectancy. (B)</p> Signup and view all the answers

What trend is evident in the distribution of child mortality rates between 1960 and 2000?

<p>Shift towards lower child mortality rates. (A)</p> Signup and view all the answers

Based on the provided information, how did the distribution of the share of skilled (educated) individuals change between 1960 and 2000?

<p>The distribution shifted towards a higher share of skilled individuals. (B)</p> Signup and view all the answers

What general trend is observed in the total (gross) fertility rate between 1960 and 2000?

<p>A general decrease in the total fertility rate. (D)</p> Signup and view all the answers

How did the distribution of the net reproduction rate change between 1960 and 2000?

<p>The distribution shifted toward lower net reproduction rates. (D)</p> Signup and view all the answers

What trend is observed in the distribution of income per capita between 1960 and 2000?

<p>A shift towards higher income per capita values. (A)</p> Signup and view all the answers

Based on the presented 'facts' of long-run growth, which of the following is a characteristic of the model?

<p>Sustained growth after an initial period of stagnation. (C)</p> Signup and view all the answers

How have increases in human capital affected the skill premium?

<p>Increases in human capital have not reduced the skill premium. (B)</p> Signup and view all the answers

How did the change in percentage with some formal education relate to life expectancy at birth, considering a lag of 20 years?

<p>Higher life expectancy corresponded to an increase with some formal education. (A)</p> Signup and view all the answers

What factor related to market dynamics substantially increased during the period studied?

<p>Market extent. (D)</p> Signup and view all the answers

What factor influences the variability in growth rates according to the long-run growth model?

<p>Distance to technology frontier. (C)</p> Signup and view all the answers

In analyzing the change in the share of educated individuals over 40 years, what scenarios are considered in addition to the baseline model?

<p>High mortality. (D)</p> Signup and view all the answers

What previously overlooked factor did Jones and Romer (2010) suggest is important to capture in formal models of economic growth?

<p>Factors difficult to capture. (D)</p> Signup and view all the answers

According to the content, how does the effect of life expectancy on fertility change during the demographic transition?

<p>It transitions from positive to negative. (A)</p> Signup and view all the answers

What might be a reason for observing a non-monotonic effect of life expectancy on fertility?

<p>Misspecification of the empirical model. (B)</p> Signup and view all the answers

Based on the figures provided, which of the following statements is most accurate regarding the relationship between changes in log life expectancy and changes in log population from 1940-1980?

<p>The relationship appears positive for pre-transitional countries and negative for post-transitional countries. (B)</p> Signup and view all the answers

Considering the graphs showing 'Change in Log GDP per capita 1940-1980,' what can be inferred about the relationship between life expectancy increases and economic growth?

<p>The relationship between life expectancy and GDP per capita appears to be positive overall, but varies depending on the country's transitional stage. (D)</p> Signup and view all the answers

Which of the following countries experienced both a substantial increase in life expectancy and a relatively modest increase in GDP per capita between 1940 and 1980, according to the provided figures?

<p>Venezuela (VEN) (C)</p> Signup and view all the answers

Which of the following is a potential implication of the observed relationship between life expectancy and demographic transition for economic modeling?

<p>The stage of demographic transition might moderate the effects of policies aimed at improving health. (A)</p> Signup and view all the answers

Suppose a country implements policies that significantly increase life expectancy. Based on the documented demographic transition, what broader effects might one anticipate?

<p>A potentially positive effect on fertility initially, which could then shift to a negative effect as the country develops. (A)</p> Signup and view all the answers

Based on the graphical data, which region saw a notable rise in both life expectancy and GDP per capita from 1940 to 1980?

<p>Regions primarily in post-demographic transition. (A)</p> Signup and view all the answers

Assuming that the observed trends from 1940-1980 hold in subsequent periods, how might a country in the early stages of demographic transition strategically leverage increased life expectancy for economic development?

<p>By focusing on policies that capitalize on a potentially larger workforce while also investing in education and healthcare. (A)</p> Signup and view all the answers

What could be a plausible factor explaining why some countries, despite significant gains in life expectancy between 1940 and 1980, did not experience a corresponding boom in GDP per capita?

<p>Decreased investment in education and infrastructure. (C)</p> Signup and view all the answers

If a researcher aims to predict future population growth in a developing country, how should they account for the relationship between life expectancy and fertility?

<p>Consider the stage of demographic transition and model the relationship accordingly, allowing for a shift from positive to negative. (D)</p> Signup and view all the answers

How might rapid technological advancements in healthcare influence the demographic transition of a developing nation?

<p>By accelerating the increase in life expectancy, potentially leading to a quicker shift towards negative fertility effects. (C)</p> Signup and view all the answers

Considering the potential for misspecification in empirical models, what step might researchers take to ensure the validity of their conclusions regarding life expectancy and demographic transition?

<p>Use more sophisticated modeling techniques that account for the non-linear and potentially non-monotonic relationships. (D)</p> Signup and view all the answers

In a country with a traditionally agrarian economy, how might increased life expectancy influence the rate of urbanization?

<p>By increasing the demand for urban jobs and services as a larger proportion of the population lives longer, potentially accelerating urbanization. (D)</p> Signup and view all the answers

How can governments use the understanding of the demographic transition to formulate better social and economic policies?

<p>By tailoring policies to the specific stage of demographic transition, such as investing in education and healthcare in early stages and addressing aging-related issues in later stages. (A)</p> Signup and view all the answers

Flashcards

Longevity and Education

Greater longevity is associated with more investment in education due to a relaxed time budget constraint.

Longevity and Labor Supply

Lifetime labor supply is affected by longevity. This is shown in data from US cohorts of men born from 1840-1970

Ben-Porath Model

A model where investing in human capital takes time away from market work, but greater longevity relaxes the time budget constraint, resulting in more education.

Education Expansions

Lifetime labor supply isn't a necessary condition for education expansions, but the relative increase of benefits over costs drives it.

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Rectangularization of Survival

The shape of the survival function changes over time, becoming more "rectangular," with people living closer to their maximum lifespan.

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Life Expectancy & Growth

Panel-IV studies show conflicting evidence on life expectancy's effect on economic growth.

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Solow-type Economy

A closed economy model where output (Yt) depends on technology (At), human capital (Ht), and physical capital (Kt).

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Human Capital (Ht)

Ht equals the product of average human capital (ht) and the number of people (Nt).

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Income per Capita Equation

Log income per capita (ln yt) is determined by technology (ln At), Education Levels (ln ht), population (ln Nt) and other exogenous variables.

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2-way FE Model

Two-way fixed effects model to estimate the impact of life expectancy (T) on income (y) across countries and time.

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What determines demographic transition timing?

Differences in extrinsic mortality and demand for human capital.

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How are inequality and institutional change linked?

Long-run growth leads to inequality dynamics, which influences institutional change.

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How do demographics influence development and inequality?

Health/longevity affects individual intertemporal decisions like education, while fertility and population dynamics affect the wage structure.

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Health/longevity determine which decisions?

Individual decisions about education are directly determined by their health and expected longevity.

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What does population affect?

Population dynamics affect wage structure.

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What are global development patterns linked to?

Patterns of global development are closely linked to demographics.

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Does income cause democracy?

Income may or may not cause democracy.

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Does democracy cause growth?

Democracy may or may not cause growth.

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VWL (Economics) Focus

The study of economics and its applications, particularly in the long run, focusing on areas like demographics.

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Disparities in Global Development

Significant differences exist worldwide in economic progress, demographic characteristics, health, education, and institutional quality.

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Income per capita

Measures the average income per person in a specific location, often used to compare economic prosperity of different regions or countries. Often denoted as income p.c.

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Life Expectancy

The average number of years a newborn is expected to live, based on current mortality rates.

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Tertiary Education Rate

The percentage of the population that has completed tertiary (post-secondary) education.

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Fertility Rate

The average number of children a woman is expected to have in her lifetime.

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Democracy Score

The extent to which a country's political system is democratic, as measured by the Polity score.

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Global Mega Trends

Major shifts and trends affecting the world, including demographic changes, technological advancements, inequality, and potential democratic reversals.

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Demographic Transition

The shift from high birth and death rates to low birth and death rates as a country develops.

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Non-monotonic Effect

Life expectancy's effect on fertility rates changes direction during the demographic transition.

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Positive Effect (Pre-Transition)

Before the demographic transition, higher life expectancy is associated with higher fertility rates.

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Negative Effect (Post-Transition)

After the demographic transition, higher life expectancy is associated with lower fertility rates.

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Model Misspecification

A potential issue in empirical studies where the model used isn't correct, leading to biased results.

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Log Life Expectancy

Logarithmic transformation applied to life expectancy data.

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Log GDP per Capita

Logarithmic transformation applied to GDP per capita data.

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Log Population

Logarithmic transformation of population data.

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GDP per Capita

Gross Domestic Product per person; a measure of economic output per capita.

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Life Expectancy vs. Population Plot

A graphical representation showing the relationship between changes in log life expectancy and log population.

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Life Expectancy vs. GDP Plot

A graphical representation showing the relationship between changes in log life expectancy and log GDP per capita.

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Pre-Transitional Fitted Line

The fitted line represents the trend or relationship between variables before the demographic transition.

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Post-Transitional Fitted Line

The fitted line represents the trend or relationship between variables after the demographic transition.

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Early Transition Countries

Countries that experienced demographic transition earlier.

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Late Transition Countries

Countries that experienced demographic transition later.

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Preston Curve

The correlation between life expectancy and income per capita across countries.

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Increase in Human Capital

Increase in average years of schooling and overall educational attainment in a population.

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Skill Premium

The additional earnings or benefits a skilled worker receives compared to an unskilled worker.

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Secular Acceleration

Growth that transitions from slow or no progress to consistent and rapid advancement.

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Cross-Country Differences

Differences in income and productivity levels between rich and poor countries.

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Growth Variability

The risk of economic instability tends to be higher further from leading economies.

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Market Extent (Impact)

Population size, international trade, and the growth of cities enhance economic activity.

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Population Aging

Population aging affects various aspects of society, including economic growth.

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Quasi-Stagnation

A state of little or no economic growth over an extended period.

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Child Mortality

The number of children who die before reaching a certain age (usually 5 years).

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Gross Fertility Rate

The average number of children a woman would have if she lived to the end of her childbearing years.

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Net Reproduction Rate

The number of daughters a woman will have who survive to childbearing age.

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Globalization

The level of integration and interaction among people worldwide

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Urbanization

The process of shifting from rural to urban living.

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Study Notes

  • Substantial disparities exist in economic development, demographics, and institutions worldwide.
  • Demographics include health, life expectancy, education, and fertility.
  • Institutions encompass democracy, rule of law, and inclusive versus extractive systems.

Global Inequality: Income p.c.

  • Income per capita data from PWT 9.1, Year: 2010, reveals global disparities.
  • Income ranges:
    • (6457.12, 52301.6]
    • (2288.45, 6457.12]
    • (609.744, 2288.45]
    • [103.776, 609.744]
    • No data

Global Inequality: Life Expectancy

  • Life expectancy data from the World Bank, Year: 2010, illustrates global disparities.
    • (76.25767, 82.84268]
    • (72.051, 76.25767]
    • (63.558, 72.051]
    • [45.596, 63.558]
    • No data

Global Inequality: Education (tertiary)

  • Barro-Lee data, Year: 2010, highlights global disparities in tertiary education.
    • (18.3, 55.8]
    • (10.0, 18.3]
    • (3.6, 10.0]
    • [0.2, 3.6]
    • No data

Global Inequality: Fertility

  • World Bank data on Total Fertility Rate, Year: 2010, shows global disparities in fertility.
    • (4.0875, 7.485]
    • (2.4615, 4.0875]
    • (1.8095, 2.4615]
    • [1.226, 1.8095]
    • No data

Global Inequality: Democracy

  • Polity-V data highlights global disparities in democracy.
    • (9, 10]
    • (6, 9]
    • (-2, 6]
    • [-10, -2]
    • No data
  • Demographic change includes population aging, fertility decline, and education expansion.
  • Other trends: technological change, economic development, increasing inequality, democratic reversals, climate change, and resource depletion.
  • Microeconomics focuses on individual decisions
  • Macroeconomics focuses on aggregate dynamics.

Demography and Economic Development

  • Demography impacts savings, education, and fertility at the micro-level.
  • Macro-level: demography affects capital stock, human capital, and population dynamics.

Stylized Patterns of Long-Run Development

  • Economic transition involves a shift from stagnation to sustained income growth.
  • Economic transition is linked to the expansion of human capital.
  • Demographic transition includes increased adult longevity, declined child mortality, and fertility decline.

Conceptual Framework

  • Long-run development can be modeled using overlapping generations with finite life expectancy, and is based on Cervellati and Sunde (AER 2005, AEJ:Macro 2015).
  • Individual decisions: education and fertility (quantity, quality).
  • General equilibrium: production, factor prices, and incomes.
  • Externalities across generations (or countries).
  • Health and production technologies.
  • Long-run equilibrium development dynamics
  • Delays in development arise due to country-specific factors.

Demography: Longevity Dynamics

  • Life expectancy at birth has been increasing over time.

Demography: Fertility Dynamics

  • Total Fertility rate is decreasing over time.

Simulation and Data: Sweden 1750-2000

  • The data shows life expectancy at birth and age 5.
  • School enrolment and the share of skilled workers is increasing over time.

The Timing of the Take-Off

  • Lower extrinsic life expectancy implies a later onset of the take-off.
  • Lower level of economic development.
  • Extrinsic mortality varies considerably and depends on country-specific, time-invariant factors (Cervellati, Sunde and Valmori, Mathematical Population Studies 2012).

Filling the Gaps

  • Comprehensive growth framework should capture endogenous accumulation and interaction between the following state variables: physical capital, population, human capital and ideas (technology)
  • Investigation savings and capital effects on human and economic development, drivers of delay, and institutions.

Dynamics of Long-Run Development

  • 2 Period OLG: work, education, fertility, are savings
  • Work returns to savings.
  • Education and fertility are costly.
  • Aggregate capital-skill complementarity.

Filling the Gaps: Evidence:

  • Life expectancy effect on schooling and growth
  • Prototype of the Ben-Porath model: investing in human capital takes time
  • Budget constraints imply greater longevity to more education
  • Longevity also affects labor supply of lifetime labor

The Role of Health

  • Ben-Porath with realistic assumptions: realistic survival law, consideration of variation along the intensive margin of labor supply, and realistic human capital production function and earnings function.
  • Lifetime labor supply isn't a criterion, the relative increase of benefits over costs is.

Life Expectancy and Growth:

  • Solow-type closed economy considered
  • Formula to work out effects of Life Expectancy T
  • Data taken from 47 countries between 1940 and 2000 for analysis.

Life Expectancy and Growth:

  • Contradictory evidence is from the data panel
  • Negative growth can occur from Malthusian features.
  • Potential effects of demographic Transition.

Filling the Gaps: Drivers of Delay?

  • Timing in demographic delays can impact contemporaneous economic development differences.
  • Determines growth potential and growth dynamics

Filling the Gaps: Institutions?

  • Debate of income-democracy nexus
  • Does income cause democracy or does democracy cause growth?

Institutions – The Income-Democracy Nexus

  • Long-run growth leads to inequality
  • Institutional change based on inequality and redistribution
  • Combines new insights

Conclusion

  • Demographic dynamics are crucial to understand development and inequality dynamics
  • Health and longevity affects education
  • Fertility and population have an effect on wage structure
  • Global development linked to heterogeneous demographics

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