Endogenous growth, human capital and the dynamic costs of recessions
ISSN: 0144-3585
Article publication date: 28 February 2020
Issue publication date: 6 April 2020
Abstract
Purpose
The purpose of the paper is twofold: to construct and analyze a novel endogenous growth model, in which unbounded growth is possible without the need to assume increasing returns to scale, and to use the model to estimate the long-run (or dynamic) costs of recessions.
Design/methodology/approach
In the proposed model, endogenous technology and human capital accumulation serve as the “twin engines of growth.” Simulations are used to derive growth rates consistent with long-term experience of developed countries, to understand better the differences between balanced growth and unbounded growth and to provide an estimate of the dynamic costs of capacity utilization shocks that produce business cycle-like behavior.
Findings
Conservative calculations show that the costs of the capacity shocks can be large – about 1.5 percent of the present value of output over a 100-period horizon. The theoretical model also suggests that differences in the technology production and human capital accumulation functions, possibly due to differing institutions, may help explain diverse growth experiences.
Originality/value
The paper, for first time, combines two strands of the economic growth theory – endogenous technology and endogenous human capital production – into a single model. It uses the implications of the model to argue, through simulations, that the benefits of counter-cyclical policies are potentially large in the long run.
Keywords
Acknowledgements
We would like to thank three anonymous referees for helpful comments and insightful suggestions. Any remaining errors or omissions are the authors' responsibility. The Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This paper expresses the authors' views and does not necessarily reflect those of the Commission, the Commissioners, or other members of the staff.
Citation
Roufagalas, J. and Orlov, A.G. (2020), "Endogenous growth, human capital and the dynamic costs of recessions", Journal of Economic Studies, Vol. 47 No. 2, pp. 264-285. https://doi.org/10.1108/JES-05-2018-0176
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited