The Impact Of Human Capital Investment On The Economy

This paper employs the general equilibrium framework to establish a model composed of a manufacturing sector, a producer services sector, an agricultural sector and an education sector in the contexts of a human-capital-induced dual economy. Through comparative static analysis, the paper investigates the impacts of an increase in human capital investment on the industrial adjustment, national income, income disparity, welfare and the adjustment of the labor market on the condition of perfect competition and oligopolistic competition respectively. It finds that the results obtained on condition that the producer services sector meets perfect competition are almost the same as the results obtained when the producer services sector meets oligopolistic competition, which shows that the model is theoretically robust.The thesis is composed of five chapters. The first chapter is introduction, providing the background of the topic, briefing the mechanism of how human capital investment influences the economic development, and showing the research approach as well as the logic of this thesis. The second chapter is literature review. This part summarizes the present literatures on the relation between human capital investment and the duality of the labor market as well as the relation between the development of producer services sector and industrial transformation, and then presents possible innovation of this thesis. The third chapter establishes the basic model on condition of perfect competition, based on which the impacts of human capital investment on industrial structure, national income, income disparity and labor market structure are analyzed via comparative statics. The fourth chapter extends the model to meet the condition of oligopolistic competition, does the same analysis as in the third chapter, and compares the results with those gained in the third chapter. The fifth chapter is the conclusion, providing suggestions to policymakers and pointing out the shortcoming of this thesis.The main results of the paper are as follows. If the government increases human capital investment, the output of the producer services sector is increased, the output of the agricultural sector is reduced, and the output of the manufacturing sector is increased on certain conditions. Hence the increase in human capital investment would facilitate the industrial structure transition. In addition, an increase in human capital investment would reduce income disparity, increase welfare, and increase national income on some conditions. With regard to the labor market, an increase in human capital investment would improve the structure of the labor market and weaken the duality of the labor market by increasing the employment in the producer services sector, reducing the employment in the agricultural sector and leading to a transfer of unskilled labor from the agricultural sector to the manufacturing sector. Based on these results, the author provide some suggestions on the policies related to improving industrial structure, income distribution and labor market structure in conclusion.