AND GROWTH

A growth model is developed in which finite-lived individuals invest in human capital1 and investments have a positive external effect on the human capital of later cohorts, Heterogeneous labor is the only factor of produotion, and higher-quality labor produces higher-quality goods, Stationary growth paths, along which humen ospital and the quality of consumption goods grow at a common, constant rate, are studied. It is also shown that if a small eoonomy is very advanced or very backward relative to rhe rest of the world, then its rate of investment in human capital is lower uuder free trade than under aurarky