The Uzawa–Lucas model is an

economic model An economic model is a theoretical construct representing economic processes by a set of variables and a set of logical and/or quantitative relationships between them. The economic model is a simplified, often mathematical, framework designed ...

that explains long-term economic growth as consequence of

human capital Human capital or human assets is a concept used by economists to designate personal attributes considered useful in the production process. It encompasses employee knowledge, skills, know-how, good health, and education. Human capital has a subs ...

accumulation. Developed by

Robert Lucas, Jr. Robert Emerson Lucas Jr. (September 15, 1937 – May 15, 2023) was an American economist at the University of Chicago. Widely regarded as the central figure in the development of the new classical approach to macroeconomics, he received the N ...

, building upon initial contributions by Hirofumi Uzawa, it extends the

AK model The AK model of economic growth is an endogenous growth model used in the theory of economic growth, a subfield of modern macroeconomics. In the 1980s it became progressively clearer that the standard neoclassical exogenous growth models were theo ...

by a two-sector setup, in which physical and

are produced by different technologies. The Uzawa–Lucas model is part of

endogenous growth theory Endogenous growth theory holds that economic growth is primarily the result of endogenous and not external forces. Endogenous growth theory holds that investment in human capital, innovation, and knowledge are significant contributors to economic ...

Background

Lucas' approaches in a series of papers published in the 1970s were a challenge to the classic principles of

Keynesian economics Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomics, macroeconomic theories and Economic model, models of how aggregate demand (total spending in the economy) strongl ...

when he suggested an amassed version of microeconomics models and then emphasized on human

capital accumulation Capital accumulation is the dynamic that motivates the pursuit of profit, involving the investment of money or any financial asset with the goal of increasing the initial monetary value of said asset as a financial return whether in the form ...

. In his 1988 dissertation, using Ramsey framework and

Cobb–Douglas production function In economics and econometrics, the Cobb–Douglas production function is a particular functional form of the production function, widely used to represent the technological relationship between the amounts of two or more inputs (particularly phy ...

Lucas gave more attention to formal education rather than learning-by-doing. While in Solow-Swan model human capital is constant which leads to no transitional dynamics, Lucas measures total capital as the ratio of physical to human capital, not as a sum. In the original paper, Lucas described the properties of both centralized and decentralized economics evolving with balanced paths.

Background

References

Further reading