Literature Review on Inflation and Sweden Economic Growth

Introduction

Economic growth is 1 of the most important fields in economics. Since sustained economic growth is the about important determinant of living standards, at that place is no more important upshot challenging the research efforts of economists than to empathise the causes of economic growth. Man capital has been identified equally a cardinal stimulus of economic growth.

In fact, it can never be overemphasized that human capital is the engine of growth of an economy. No nation tin can develop beyond its investment in education in particular. Growth economists in affirmation have explained that the differences in the per capita income of countries cannot be explained in isolation from the differences in man capital letter development.

Health and pedagogy are both components of homo majuscule and contributors of human welfare. Numerous economists research their relevance in the economic growth and tried to contain human capital in the growth model. While some researchers take a Keynesian route and stress on the need factors, other researchers follow the neoclassical route and emphasis the role of factor supplies in growth.

Human Capital letter in the form of education

It is equally important to effectively and efficiently measure the human capital with the perceiving importance of human capital. Since, human being uppercase is considered every bit a synonym of noesis embedded in all levels such every bit an private, an organizations and a nation, pedagogy is the master chemical element in the measurement of human uppercase.

Some economists attempted to measure the stock of human capital letter utilizing "school enrollment rates" as a proxy of human majuscule. Through the study of 129 countries for a time period 1960 to 1985, Barro and Lee, 1993 concluded that female education stimulates the acquisition of human capital through children. A fact is in accord with the findings of De Tray, 1773 and Becker and Lewis, 1973. Barro and Lee reconcile their findings with the conclusion of De Long and Summers (1992) with the belief that "perhaps the true key is to accept educated women working with machines". (Barro and Lee, 1991, p29). Withal, the study of Kyriacou in 1991 ended a negative and insignificant correlation between years of schooling in labour forcefulness and future growth. One of the possible explanations for this result is the link between homo capital letter and subsequent growth of technology was ignored. The method of using schoolhouse enrollment rates is criticized as student's effectiveness can be recognized after participating in production activities.

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Nehru, Swanson, and Dubey (1993) attempted to measure out relationship between human being capital and students‟ "accumulated years of schooling" in the employable age every bit educational attainment. Their approach to measure out homo capital is similar to that of Lau, Jairison, and Louat( 1991), Psacharopolous and Arriagada (1986,1992). The results show a positive human relationship between education stock and its influence on income per capita. They also concluded that there is a high correlation between education stock and other human upper-case letter indicators and hence justify the usage of this variable as a proxy for man capital. Nevertheless, they note that there is a problem with the estimates of education stock due to repeaters and dropout rates. The weakness in the study pertains to education stock estimation equally they are "based on sparse data of uneven quality"( Nehru, Swanson, and Dubey,1993, p8). Romer (1990) suggested the ratio between skilled-adults and total adults to measure the stock of human being capital in the national economy.

Another arroyo to measure human capital is through the returns which an private obtains from a labour market throughout education investment. Mulligan and Sala-i-Martin (1995) defines that aggregate human being uppercase is the sum of quality adjustment of each individual's labor force, and presents the stock of human upper-case letter utilizing an individual's income. Their belief was that the "quality of a person would be related to the wage rate he receives in the market place"( Mulligan and Sala-i-Martin, 1995, p.2). This measure called the Labour –Income –Based is a measurement of human capital calculated through wage rate. Though this report, it was noted that the usage of average years of schooling as a measurement could exist misleading since economists could translate the increase in income in 1980s contained of human capital letter accumulation due to the dispersion of boilerplate years of schooling.

Human capital in the form of Health

A large trunk of literature has established that investment in instruction pay off in the course of college future earnings. However, the demerit of the conventional measurement of the human capital is the disregard to qualitative benefits of human capital such as health, fertility rate, child bloodshed. Given the importance of "health capital" for education and earnings (Grossman, 2000; Case, Fertig, and Paxson, 2005; Currie and Madrian, 1999; Smith, 1999), information technology is possible that poor health has an impact on didactics and hence on economic status. Many wellness shocks can affect homo capital and productivity, both in the short-run (Strauss and Thomas, 1998; Currie and Stabile, 2006) and the long-run (Cunha and Heckman, 2007; Currie and Hyson, 1999)( Joshua Graff Zivin and Matthew Neidell, 2013). The World Health Organization'due south Commission on Macroeconomics and Health (2001) claims the post-obit. "Improving the health and longevity of the poor is an end in itself, a fundamental goal of economic development. But it is as well a ways to achieving the other development goals relating to poverty reduction. The linkages of health to poverty reduction and long-term economic growth are powerful, much stronger than is generally understood."

Despite the importance of wellness capital, the empirical literature of the effects of health on economic growth is relatively thin. Recent experimental or quasi-experimental studies, such as Thomas and Frankeberg (2002) and Thomas et al. (2003) have plant that specific health sector interventions help recipients raise earnings significantly, and general indicators of wellness and nutrition status are significant predictors of economic success. At macroeconomic level, several researches back up the positive contribution of health on economical growth. Barro (1996b), Flower and Canning (2003), Bloom, Canning, and Sevilla (2004) and Gyimah-Brempong and Wilson (2004) find that health majuscule indicators have desirable influence on aggregate output. For the countries in their sample, about one-fourth of economic growth was owing to improvements in health capital, and improvements in health weather condition equivalent to ane more than yr of life expectancy are associated with higher growth of up to 4 per centum points per year.

The following table summarises the finding of macroeconomic studies with wellness.

Source: J. Hartwig / Periodical of Macroeconomics 32 (2010) 314–325

According to Weil (2007, p. 1295 and 2005, pp. 153–161), wellness's positive effect on Gross domestic product is strongest among poor countries. The existing prove on whether health capital formation has an impact on economic growth gives a mixed response. Some papers such as Heshmati (2001), Rivera and Currais (1999a, 1999b, 2003, 2004) accept the significance of health capital formation for economic growth in OECD countries. However, Knowles and Owen (1995, 1997) as well as McDonald and Roberts (2002) turn down the hypothesis that life expectancy is a statistically significant explanatory variable for productivity growth in high income countries. IN fact, Bhargava et al. (2001) and Acemoglu and Johnson (2007) estimated a negative effect of developed survival rate on economic growth for US, France and Switzerland.

Some studies have associated fertility rate and child mortality with human capital. The best known written report between population growth and development is Kuznets (1967). His study found a positive correlation between growth rates of population and income per capita within broad country groupings, which he interpreted as bear witness of a lack of a negative causal effect of population growth on income growth. Notwithstanding, Kelley (1988) found no correlation between population growth and growth of income per capita, and similarly no relationship between population growth and saving rates. Summarizing many other studies, he concluded that the bear witness documenting a negative effect of population growth on economic development was weak or nonexistent.

Becker et al. (1990) associated endogenous fertility and a rising rate of return on human capital equally the stock of human being capital increases. Their analysis discusses the importance of investment of human capital and the touch of family sizes and birth rates. They ended that "societies with limited human capital cull big families and invest little in each member; those with arable human capital do the opposite " ( Becker et al., 1990, p.35). Weil et al.(2012) establish that a reduction in fertility rate will increase Gross domestic product per capita income by an economically significant amount. This result is similar to the findings of Bloom and Canning (2008) who have regressed the growth charge per unit of income per capita on the growth rate of the working-historic period fraction of the population, and have gotten a positive and significant coefficient. The high growth of working age fraction is the result of fertility reductions; it can be seen as showing the economic benefits of reduced fertility.

Growth Models

Being one of the almost important determinants of living standards, economical growth is amongst the about of import issue challenging the research efforts of economists. Many adopted the neoclassical growth approach to written report economic growth. The neoclassical growth model emphasizes the role of cistron supplies in growth equally it seeks to undermine the long-run economic growth rate determinant through the accumulation of factor inputs such as physical capital letter and labour.

Over time, man uppercase was introduced in the growth model. The concept of upper-case letter in the neoclassical model has been broadened from physical appurtenances to include human capital in the class of education, grooming and experience. In the early 1960s, Schultz initiated the man capital revolution in economic thought. He claimed that "This noesis and skill are in great part the product of investment and, combined with other human being investment, predominantly business relationship for the productive superiority of the technically advanced countries. To omit them in studying economic growth is like trying to explain Soviet credo without Marx."(Schultz, 1961, p.3).

Exogenous growth model

In general, there are two bones frameworks that seek to empathise the relationship between man capital and economic growth. The beginning approach is through the exogenous growth model adopted by Nelson and Phelps (1966). The exogenous growth model has its origin form the Solow growth model.

The crux of this model is the aggregate production function written in the general form:

Y = F (A, Thou, L),

Where output is explained as being a function of engineering, A in addition to capital (K) and labour (L).

In 1957, subsequently a report of xl years of growth, Robert Solow concluded that "it is possible to argue that nigh one-8th of the total increment is traceable to increased capital per man hour, and the remaining seven-eighths to technical alter" (Solow 1957, p316).

The Solow growth model assumes a abiding growth charge per unit of productivity, chiliad

Y = A₀ eastward^gt K^α Fifty^1-α.

This implies that the growth in income in income is determined past productivity growth, g and growth of capital letter per worker. However, Solow left technological progress unspecified. Moreover, the model assumption of market competitiveness, abiding returns to scale atomic number 82 to farther study of the model.

In his seminal paper, Nelson and Phelps (1966) related how level of human capital stock is an indirect determinant of economic growth. They concluded that "the usual, straightforward insertion of some index of educational attainment in the production function may found a gross misspecification of the relation between education and the dynamics of production." (Nelson and Phelps, 1966, p.75) They believe that stock of human capital determines the economical chapters of a nation to introduce, which in plow lead to economical growth. Education and training facilitate the implementation and usage of new techniques makes an economic system technologically progressive and more productive. Henceforth, incentives to introduce and market structures necessary for research and development have become important in theories for growth. The Schumpeterian growth literature revived this doctrine. The Schumpeterian theory explains that "current innovators exert positive knowledge spillovers on subsequent innovators as in other innovation-based models, merely where electric current innovators as well bulldoze out previous technologies-, generates predictions and explains facts about the growth process that could not exist accounted for by other theories."(Aghion et al, 2013, p.35)

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The empirical literature on technical diffusion has been growing. The role of human uppercase in facilitating technological is supported by Welch (1975), Bartel and Lichtenberg (1987) and Foster and Rosenzweig (1995). The pregnant spill-overs are documented by the survey of Griliches (1992). Benhabib and Spiegel (1994), using cross-country data, investigate the Nelson-Phelps hypothesis and conclude that technology spillovers flow from leaders to followers, and that the rate of the flow depends on levels of teaching. Every bit a thing of fact, a groovy bargain of written report seeks to analyse the relationship between level of education and technological diffusion and this affects economic growth. Some examples volition be Islam (1995), Temple (1999), Krueger and Lindahl (2001), Pritchett, Klenow and Rodriguez-Clare (1997), Hall and Jones (1999), Bils and Klenow (2000), Duffy and Papageorgiou (2000), and Hanushek and Kimko (2000). (Jess Benhabib and Mark M. Spiegel, 2002)

Endogenous growth model

The second approach is the endogenous growth model inspired past Gary Becker's human being majuscule theory (1964) which directly links homo capital to economic growth. The basic idea behind Becker's view is that growth is driven by human capital accumulation. Nobel laureate Robert Lucas presented an endogenous growth model in which the engine of growth is the human capital. He added "what Schultz (1963) and Becker (1964) telephone call 'human capital' to the model, doing so in a way that is very close technically lo similarly motivated models of Arrow (1962), Uzawa (1965)and Romer (1986)" ( Lucas, 1988. p.17). He causeless that individuals choose to allocate fourth dimension to current product or schooling based on increases in productivity and wages in the futurity due to the current investment of fourth dimension in educational activity.

Lucas model tin can be summarized in

Y = G^ß(UH)^1-ß,

Where H represents the current human being upper-case letter stock of the individual and U is the fraction of fourth dimension allocated to current production and M is the per capita stock of physical capital.

Human capital growth model

Over time, with numerous studies on homo capital, different variables were included in the growth equation as a measurement of homo upper-case letter. Drawing upon Mankiw et al. (1992), Barro (1996a, 1996b), Bassanini and Scarpetta (2001), Bloom et al. (2004) and Gyimah-Brempong and Wilson (2004), the following growth equation was modelled in the Baldacci, Clements, Gupta and Cui (2008) newspaper on Social Spending, Homo Uppercase, and Growth in Developing Countries.

The growth equation is based on the framework of neoclassical growth augmented by the inclusion of education capital, ed, wellness uppercase, he, investment ratio, s_k and denotes the set of macro and institutional control variable such as the fiscal balance, inflation rate, trade openness, and governance that augment the baseline specification of the model. Moreover, it is causeless that at that place is a relationship between the initial stock and increment in human uppercase with per capita Gdp growth, g.

The baseline growth model was as follows:

Where g_it is real capita per income growth,

_1i and _1t announce the land-specific upshot and period-specific effect, respectively,

Ln (y_it-1) is the lagged logarithm of per capita income to control for the expected reduction in growth rates as per capita incomes rising and there is convergence to steady growth rates;

S_kit denotes the investment ratio,

Ed_it refers to the stock of education capital letter, which is proxy by the sum of the gross primary and secondary enrollment charge per unit,

Ed refers to changes in instruction capital,

He_it refers to the stock of wellness capital, and he refers to changes in health capital,

^chiliad _it consists of command variables and u_{information technology} is the error term.

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