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A Study of Human Capital Investment Based on Over Lapping Generation Model

Author: MengWangSheng
Tutor: WangXun
School: Dongbei University of Finance
Course: Western Economics
Keywords: Human Capital Investment Over Lapping Generation Model capital return Economic Grow
CLC: F224
Type: Master's thesis
Year: 2010
Downloads: 162
Quote: 0
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Abstract


Human capital is very important for the development of a country. Why human capital have been developed so rapid in some country that it reversely contribute to the nation’s GDP development, but the others is in the opposite situation? What factors affecting human capital investment?In order to resolve these questions mentioned above, through the follow three steps this thesis complete discussion. First, it studied the human capital investment behavior of individuals. Second, through aggregate the human capital investment behavior of individuals, we conclude that what major factors are affecting a nation’s human capital investments, and what relationships have been among human capital and these factors. Finally, on the basis of these conclusions above, I extended the related questions and obtained a series of related conclusions.In the process of researching individual human capital investments, the Over Lapping Generation Model was been introduced the thesis, and I perfecting the Over Lapping Generation Model’s assumption:1.people is rational and people’s life was divided three times.2. In the first time, people invest human capitals to themselves. In the second time, people can obtain wage through labor, and the wage is used to consumption, save and repaying the debt that he borrowed in his first time. In the third time, people live rely on the save from second time and interest generated by save, and people died in the last of the third time.3. Every people’s wage is decided by his labor in his second time, and every people’s labor only decided by his human capital investment in his first time. Through these very rational assumptions above, human capital investment is, very clever into the Over Lapping Generation Model analysis framework.After bringing human capital investment into Over Lapping Generation Model, utility function of individual will be constructed. Then, by solving the utility function, we can conclude some conclusions about individual. Last, through the way that aggregate micro individual actions, macro conclusions naturally will be come to:1.The human capital investment of a country is affected by the expected capital return. Definitely, the human capital investment is change in opposite direction with the expected capital return.2.A nation’s human capital investment is affected by the nation’s consumer preferences. The more like current consumption a nation’s citizens, the more human capital investment will be in the nation.3. A country’s Labor generated elasticity of human capital investment is also affect the development of human capital investment.About the first conclusion above, I use the data from 1978 to 2008 come from china to empirical test. The method is as follows:firstly, establish the four factors model of human capital investment, and through method of the MTV models, I estimate the 1978-2008 human capital investment. Secondly, according to the method of the research group of "China Economic Observe" in CCER, "the estimates of China return on capital (1978-2006)", we estimated the China capital return from 1978-2008. Finally, through the regression of the two sets of data, we will found that the actual data of our country is very good for fitting the conclusion above.Besides the above research methods and relevant conclusions, the thesis also implicit following ideas:1. Labor is divided simple labor and complex labor. The process of developing human capital investment is the process of forming labor and making simple labor gradually become complex labor. The more complex a complex labor is, the one unit complex labor can replacement more simple labor. But it is not that one unit complex labor will must be consume more calories than the same one unit simple labor.2. All previous Over Lapping Generation Models assume that people is fully homogeneous. This assumption has been perfected in this thesis:it assume that people are different. People’s different quality stems from that every people have developed different human capital investments to themselves in their first life time. Because the human capital investments is different, so people possess different labor capacity in their second life time, and of course, people will have different income. Different income will leads to all different.3. Simple labor is relatively, with the development of history, it will be change. A kind of labor is simple in today, but maybe it would be complex labor several decades ago. So it is historical that measure a kind of labor is simple or complex. But, fortunately the ideas of simple and complex labor have be discussed in the thesis is in the same historical stage. Therefore, that entirely can be comparable.4. The ideas of that substitute mutually between human capital investment and capital investment. Human capital investment has opposite direction change with the expected capital return shows:the human capital investment and the capital investment will substitute mutually and rise alternatively.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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