Sorry to ask a non-DSGE modeling question under this category. My question is rather about General OLG modeling (but still macro, so maybe someone has an idea):
The government in my country (Ghana) introduced educational subsidies in 2017, but it is a public debate among policymakers (since then) if that policy will cause an increase in economic growth. I have read the literature, and this debate is also true among academics.
In the same country, Esther Duflo and her co-authors did a randomized control trial of the policy where they subsidized some students (treatment group) but not others (control group). Aggregate growth effects, however, are inconclusive from the results of the paper. More like we don’t know; we have to wait and see.
Then some authors (Fujimoto et al.) use an OLG model (calibrated to Ghana’s economy) to conclude that the policy will raise steady-state GDP by 7%. However, they exclude physical capital from the model.
So I introduce physical capital into the OLG model (calibrated to Ghana’s economy). The results show that the increase in GDP as a result of the policy is not a guarantee. It depends on the tax rate, subsidy rate, and so on.
Some policymakers say we should use that money elsewhere, like investing in physical capital, which kinda makes sense to me. Because currently, our growth rate of human capital (from the PWT dataset) exceeds the growth rate of physical capital. So if \frac{K}{H} is constant in steady-state as endogenous model posits, then we are kinda approaching a lower \frac{K}{H} steady-state in my country. So perhaps, we should spend that money on physical capital, not human capital.
So I want to do that in the OLG model. That is, take the money the government is using to subsidize human capital and give it to firms to subsidize their physical capital accumulation. Does that make sense in an OLG environment? It makes sense to me, but of course, I could be wrong…:). And although I have searched, I have not found a paper that does that. Thanks for any comments.