Optimal Portfolio of Knowledge and Human Capital Investment

Abstract

We address the optimal combination of the subsidies to the R&D investment, the educational investment, and the job training to attain the optimal portfolio of the knowledge investment and the human capital investment. The policy simulations, using a general equilibrium model, which reflects the characteristics of the Korean economy and the knowledge production and the human capital accumulation process, show that: (1) the subsidy to the R&D investment is more effective to improve the productivity and the welfare of the future generations than that to the educational investment (or to the job training); (2) compared with the difference in the impact of the subsidy schemes on the productivity, the difference in the increase in the tax burden due to the provision of the subsidy is smaller, which indicates the differential effects on the welfare; and (3) the optimal combination of the subsidy schemes, taking into account the differential impact on the productivity, the tax burden, the welfare across generations, is shown 50-65% subsidy to the R&D investment, 65-80% subsidy to the educational investment, and no subsidy to the job training.