Thomas Bassetti
Education and Poverty in a Solow Growth Model

Abstract:In this paper, we introduce a possible mechanism to explain the nonlinear relationship between education and human capital and then education and economic growth. In particular, we consider the effect on GDP growth of a non constant depreciation rate of human capital. Specifically, we assume that the depreciation rate of human capital is positively related to the level of education attained by an individual. We provide a theoretical framework in which education can generate a nonlinear process of human capital accumulation. We will then use this result to modify the Solow model. Subsequently, we will show that our model can explain the existence of multiple equilibria in the output growth path. Through a numerical example, we will show that, for reasonable values of the parameters, our model may generate multiple steady-states. In the second part of the paper, we use a cross-section of 78 countries to conduct some econometric analyses. The aim of the empirical analysis is to show that the returns to scale in producing human capital are not constant.

JEL:E13, I2, O4.
Keywords: Economic Growth, Human Capital, Nonlinear Dynamics.



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