Long-run Growth, Social Institutions and Living Standards
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Long-run Growth, Social Institutions and Living Standards

Edited by Neri Salvadori and Arrigo Opocher

This engaging book contains a set of original contributions to the much-debated issues of long-run economic growth in relation to institutional and social progress.
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Chapter 10: Education, Change in Consumer Preferences and Growth

Renato Balducci


* Renato Balducci 10.1. INTRODUCTION The idea that investment in education, whether public or private, can promote economic growth was recognized by New Growth Theory,1 contrary to the neoclassical theory that preceded it.2 Lucas (1988) argued that investment in (that is, time dedicated to) schooling increases the stock of human capital and the long-run rate of growth. Similarly, government spending on research and development (Romer, 1990), on schooling (Mincer, 1974; Willis and Rosen, 1979; Willis, 1986; Glomm and Ravikumar, 1992; Becker, 1993), on health (Barro, 1996; Bloom et al., 2001; Van Zon and Muyshen, 2001; Howitt, 2002; Mayer, 2002; Galor and Hosoya, 2003; de la Croix and Doepke, 2004) and on public infrastructures fosters economic development, introducing an externality into private decisions on production. In particular, education has a positive effect on labour productivity (Bloom et al., 2001), improving creativity, learning capacity and skills (Howitt, 2002).3 A different approach derives from Barro (1990).4 The basic hypothesis of this model is that the government provides free public services to firms, such as defence of property rights, spending on justice, health, education and so on. Public spending, financed with proportional taxes on income, affects the production function, which is with constant returns to scale in two production factors: physical capital stock and public investment.5 On maximizing the utility of private consumption, one obtains a constant steadystate growth rate which is influenced by public spending on education. An increase in the tax rate and in public investment in education fosters economic...

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