Human Capital Externality, Knowledge Spillover and Sustainable
Economic Growth

Xiangcai Meng


Azhong Ye

We attempt to introduce human capital externality and endogenous labor leisure decision into the analytical framework constructed by Uzawa (1965)
and Lucas (1988) simultaneously, so as to explore the internal relationship
among endogenous labor supply, human capital externality and sustainable economic growth as well as the choice problem of government’s education policy. The main conclusions of this thesis are as follows: 1. The sound degree of household’s time endowment allocation and the magnitude of human capital externality will work on the height of the steady state’s growth rate on the balanced growth path. 2. The larger the subjective time preference and the stronger the leisure awareness is, the lower the steady state’s growth rate of the country will be; the larger the output elasticity and education investment expenditure elasticity of knowledge spillover becomes, the higher the steady state’s growth rate of the country will be; and vice versa. 3. The government can choose from carrying out lump-sum output taxation or education subsidy to stimulate the adjustment of private labor supply and human capital investment, such that the decentralized economy could be induced to the sustainable optimal growth state. We employ China’s province level panel data to analyze empirically, all the main conclusions are supported by the empirical research; meanwhile, we also observed some puzzles which are di erent from the existing conclusions.

Key Words: Human capital externality; Knowledge spillover; Sustainable economic growth; Education policy; Panel data model.
JEL Classification Numbers: E10, H52, I20.