ON ENDOGENOUS GROWTH WITH PHYSICAL AND HUMAN-CAPITAL

This paper presents a class of models in which agents may devote part of their nonleisure activities to going to school so as to increase th e efficiency units of labor they supply to the firms and the wages the y receive. The interaction among the technology of human capital accum ulation and agents' preferences will determine endogenously the econom y's rate of growth. Given a constant returns to scale technology for p hysical capital accumulation, we characterize the set of steady states as a ray from the origin and show the global convergence of every off -balanced path to some point on this ray. Further properties concernin g the dynamic evolution of the state and control variables around the ray of steady states are also established. Our analysis is useful to u nderstand the role played by the technologies of physical and human ca pital in the process of accumulation and to evaluate the impact of pol icies geared toward attaining higher levels of capital. Our results hi ghlight the importance of human capital in the dynamics of growth.