Technological Change, Investment in Human Capital, and Economic Growth

Abstract

This paper presents a theoretical model to analyze the effects of technology change on growth rates of income and human capital. We set up an overlapping generations model in which young agents invest in both width and depth of human capital in order to adopt new technologies. The model develops explicitly the micro-mechanism of the role of human capital in adopting new technologies as well as that of the process of human capital production. In our model an increase in the technology uncertainty decreases growth rates of income and human capital by lowering efficiencies both in creating new knowledge and in adopting new technologies. We also show that, depending on the initial structure of human capital and the uncertainty about the nature of new technologies, an economy can have multiple growth paths. Hence, increased inflows of new technologies with more uncertain characteristics may affect human capital accumulation and income growth adversely, leading the economy to a low growth trap.