A Conceptual Model for Growth by Capital–Education Investments

Abstract

In a first approximation, economic growth depends on capital investments and on investments in education and innovation. The macro-economic model introduced here will specifiy aggregate output as determined by aggregate supply of capital and education investment. We will consider the effectiveness of education including its quality for the growth of the National Product. It is surprising that small changes in the quality of education have a considerable long-term impact on economic growth. Secondly, we consider the positive and negative influences of chaotic fluctuations of capital investments caused by hype cycles or erratic policies. Finally, we introduce a continuous control by consumption on education investments. In this three-dimensional macro-economic model, a tipping point exists where an increase in consumption affecting the amount of education and innovation leads to a decline in economic growth.