Human Capital and Economic Development

Robert Tamura
Working Paper 2004-34
December 2004

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This paper develops a general equilibrium model of fertility and human capital investment with young adult mortality. Parents maximize expected utility producing a precautionary demand for children. Because young adult mortality is negatively related to average young adult human capital, human capital accumulation lowers mortality, inducing a demographic transition and an industrial revolution. Data confirm the model prediction that young adult mortality affects human capital investments. The model prediction of a positive relationship between infant mortality and young adult mortality is confirmed. Further, the data indicate a negative relationship between total factor productivity growth and accumulation of schooling. The model fits the data on world and country populations, per capita incomes, age at entry into the labor force, total fertility rates, infant mortality, life expectancy, and conditional life expectancy.

JEL classification: 00, 01

Key words: mortality, human capital, demographic transition

The author would like to thank the seminar participants at the College of William and Mary, University of Chicago, University of Missouri, the RAND Corporation, the Midwest Macroeconomics Meetings at the Atlanta FRB, ASSA Winter Meetings at New Orleans, the University of Notre Dame, Brown University, the Federal Reserve Bank of New York, the University of Iowa Conference on Economic Development, and two anonymous referees for helpful comments. Tim Kehoe suggested the paper’s goodness of fit tests. The author would also like to thank Scott Baier, Gary S. Becker, Gerald Dwyer, Michael Jerzmanowski, Chad Jones, Ed Lazear, Robert E. Lucas, Jr., Sean Mulholland, Kevin M. Murphy, Curtis Simon, Paula Tkac, David Weil, and especially Sherwin Rosen. The views expressed here are the author’s and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the author’s responsibility.

Please address questions regarding content to Robert Tamura, Associate Professor of Economics, John E. Walker Department of Economics, Clemson University, Clemson, South Carolina 29634-1309, 864-656-1242,