Life expectancy and human capital: New empirical evidence

Area of Science:

• Economics
• Demography
• Human Capital Theory

Background:

• A widely accepted hypothesis suggests that increased life expectancy enhances incentives for human capital accumulation, thereby influencing global income disparities.
• Existing research often overlooks parameter heterogeneity and unobserved common factors (UCFs) when examining the relationship between longevity and economic development.

Purpose of the Study:

• To re-examine the hypothesis that life expectancy drives human capital accumulation and global income differences.
• To employ advanced econometric techniques to account for model complexities, including parameter heterogeneity and UCFs.

Main Methods:

• Utilized heterogeneous panel data models within a common factor framework.
• Explicitly addressed parameter heterogeneity, unobserved common factors (UCFs), and non-stationarity of variables.

Main Results:

• Found that the impact of health improvements on human capital accumulation is imprecisely estimated at conventional statistical significance levels.
• Demonstrated that standard estimates of educational returns to longevity are likely derived from misspecified models.
• Identified parameter heterogeneity and UCFs as key contributors to model misspecification in previous studies.

Conclusions:

• The positive relationship between life expectancy and human capital accumulation may be weaker than previously assumed.
• Methodological advancements are crucial for accurately estimating the economic impact of demographic changes, challenging established theories on global income differences.