The Nelson-Phelps (N-P) concept of human capital, which determines the speed at which a new technology may be implemented, is considered within an AK, overlapping-generations model to produce a generalized dynamic form. Finance firms are assumed to act as local monopolies in the market for loans to production firms but as monopsonistic price-takers in the deposit market for households. Households also vote for taxes that are earmarked to pay for public education, which determines the subsequent level of N-P human capital. The main result is that a concentrated financial market structure, although directly lowering economic growth, may indirectly raise it through provoking a political economy response of voting for higher taxes to pay for a greater future, level of N-P human capital.
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Mark A. Roberts
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Sir Clive Granger BuildingUniversity of NottinghamUniversity Park Nottingham, NG7 2RD
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