Human Capital Formation, Life Expectancy and the Process of Economic Development

This paper presents a microfounded theory of long-term development. We model the interplay between economic variables, namely the process of human capital formation and technological progress, and the biological constraint of finite lifetime expectancy. All these processes affect each other and are endogenously determined. The model is analytically solved and simulated for illustrative purposes. The resulting dynamics reproduce a long period of stagnant growth as well as an endogenous and rapid transition to a situation characterized by permanent growth. This transition can be interpreted as industrial revolution. Historical and empirical evidence is discussed and shown to be in line with the predictions of the model.