Human capital and growth cycles

This paper studies the dynamic interaction between human capital accumulation and economic growth. Capital market imperfections and an indivisibility in human capital investment prevent poor agents from accumulating skills, the acquisition of which positively affects technological progress. More productive technologies in turn requiremore sophisticated qualificatio and involve higher training costs. The equilibrium dynamics can be characterized by the joint evolution of productivity growth, the schooling costs, and the income distribution. Under our assumptions, individual incomes follow a non-linear Markov chain. This nonlinearity generates endogenous fluctuation of schooling activities and the rate at which productivity improvements occur.