The Uzawa–Lucas model is an

economic model In economics, a 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 desi ...

that explains long-term economic growth as consequence of

human capital Human capital is a concept used by social scientists 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 substanti ...

accumulation. Developed by Robert Lucas, Jr., building upon initial contributions by

Hirofumi Uzawa was a Japanese economist. Biography Uzawa was born on July 21, 1928 in Yonago, Tottori to a farming family. He attended the Tokyo First Middle School (currently the Hibiya High School ) and the First Higher School, Japan (now the University o ...

, it extends the AK model 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 econo ...

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 macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output ...

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

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 sum. In the original paper, Lucas described the properties of both centralized and decentralized economics evolving with balanced paths.

Background

References

Further reading