Inflation's Surprising Impact: Boosting Growth When Capital Shares Are Low
The study explores how human capital growth affects innovation and market dynamics in an economy. By adding continuous human capital improvement to a growth model, the researchers found that it leads to ongoing business creation due to skilled workers. This leads to sustained innovation alongside other types of development. Through their analysis, they discovered that inflation can have different impacts on economic growth depending on the amount of capital used in producing goods. For example, when the share of capital in production is low, inflation tends to boost growth, but the opposite is true when capital share is high. These findings were supported by real-world data from multiple countries, indicating that inflation and capital usage together play a crucial role in economic development.