Dynamic analysis of demographic change and human capital accumulation in an R&D-based growth model

Abstract

Employing an overlapping-generations model of R&D-based growth with endogenous fertility, mortality, and education choice, we examine how demographic changes and human capital accumulation influence R&D activity. We show that multiple steady states can exist in this economy. One steady state has a high level of human capital and the other has a low level. In the steady state with high (low) level of human capital, there is a high (low) level of R&D activity, a low (high) fertility rate, and a high (low) old-age survival rate. In addition, we show that the government can steer an economy away from a poverty trap trajectory by investing in public health. We also show that an improvement in the government’s public health policy has an inverted U-shaped effect on the growth rate at the steady state.