Lucas Model

• based on Uzawa and Baker
• Theory of human capital
• More investment in education - \(\uparrow\) in human capital (productivity of Human Resources \(\implies\) leads to growth)

Two effects:
- Internal
- External

\[ Y_{i} = A(K_{i}) H_{i}(H^e) \]

where,
- \(K_{i}\) physical capital @ firm
- \(H_{i}\) human cap @ firm
- \(H^e\) economy level

At firm, CRS but as a \(g\) #doubt included, \(IRS\)

\[ \dot{H} =\dfrac{dH}{dt} = (1 - \mu)H \]

where,
- \(\mu\) number of hours worked

$$
\dfrac{\dot{H}}{H} = 1 - \mu
$$
where,
- LHS = Growth in HC
- \(1-\mu\) is an increasing function