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