Investment and human capital externalities: knowledge spillovers
The more general concept of human capital includes any characteristic associated with the individual to provide a productivity differential. However, more often, this concept is reduced to education and experience of individuals. Much of the research begins with the assumption that there are human capital externalities and that these effects is positive. But, few are the authors that measure this externality and do not show how a social planner would act to internalize the distortions caused by the action of the market, while maximizing the welfare of those involved in this economy. The general goal is investigate size and sources of externalities in human capital accumulation and Pareto inefficiency generate in the competitive equilibrium. More specifically aims to: Analyzing decisions of households of investing in human capital and trade-offs faced by these agents; Investigating complementarity between physical and human capital in technology and its implications for human capital investment; Examining the Pareto inefficiency created by externalities in human capital; Comparing Pareto inefficiency with “the first best” set of allocations through a Social Planner Problem. It is important to study the effects generated by human capital because the impacts that these effects can generate economic growth and increasing welfare agents. Thus, it is important to measure what the optimal level of investment in human capital that will bring growth to a long-run equilibrium point (steady state) and, at the same time, generate public policy implications. To do this, we used the four countries called ”Four Asian Tigers” (South Korea, Singapore, Hong Kong and Taiwan) in this study. These countries were chosen because they made a leap in development generated by the high investment in education since 1960, increasing the levels of human capital and GDP per capita in these countries. In the theoretical model we assume that there are three generations in each period: children, adult and old. It is assumed that just adult agents make the economic decisions. The adult chooses consumption level, future capital for retirement purposes, and if he will educate his children or not. If the children go to school, they will become skilled workers next period. The old agents just consume the lifetime savings in form of capital. The main theoretical conclusion is that benevolent social planner maximizes a social welfare function and internalizes the external effects. The social planner in Pareto optimal, choose a higher level of human capital than in competitive equilibrium, to internalize the beneficial effects of the human capital externality. As the number of skilled workers increases, the marginal productivity of skilled labor tends to reduce and the marginal productivity of unskilled labor increases. In empirical results, we have in the competitive equilibrium model, the reduction of the externality generates reduction of the skill premium given by the increase of the number of skilled workers. In the model with subsidies, the reduction of the externality generates increase of the skill premium, increase of the utility and increase of welfare.
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