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Monday, February 13, 2006

Longevity, Education and Growth

Posting has been erratic of late, and will probably continue so to be. I am hard at work writing up (and here).

Basically I am working on the idea that there is some kind of endogenous process between education, fertility and longevity at work in the economic growth process.

Today I found an interesting paper which runs along somewhat similar lines:

Endogenous Longevity and Economic Growth by Jocelyn Finlay. Here's the abstract with some working notes on the paper below.

In a two period overlapping generations model of endogenous longevity and economic growth, individuals choose to invest in health and education. The investments are costly in terms of foregone first period consumption and the benefit is in the second period where health has the effect of increasing the probability of survival, and education investment will bring higher income. These investments are risky as survival through period two, when the payoffs can be had, is not certain. Individuals with varying degrees of risk aversion will choose the ordering in which they invest in health and education. It is only when investment in education is achieved that an economy will experience endogenous growth.

My Notes

Economic growth models that treat longevity as an exogenous parameter show that an increase in life expectancy will increase the time horizon over which returns to education can be realised, thereby encouraging investment in human capital and driving endogenous growth.

This is an important point. It is in conformity with the view of Life History Theory, and fits in with the idea that there is also a trade off between longevity and fertility.

"Investment in schooling has the effect of increasing income in the second period of life, but an individual will only live into this period probabilistically. Thus lifetime income is state contingent - a person lives through the second period or dies prematurely at the end of the first period - and if the individual lives through the second period then they are able to enjoy the higher income from skilled wages, but if they die they will have foregone current consumption to invest in schooling but are not alive to enjoy the benefit."

This seems to be thinking in terms of development economics and the evolution of the demographic transition. Definitely a valid view.

As I say, this paper is restricted in that it seems to conceptualise the problem in the exclusive case of countries passing through the 'demographic transition', but the
idea seems to have a more general applicability, in particular it seems perfectly transerable to the case of mature economies with low fertility.

Definitely worth a read.