We extend a two-sector endogenous growth model based on human capital accumulation along two different directions. First, by postulating that individuals may invest time-resources not only in the accumulation of human capital (general knowledge) but also in the accumulation of financial literacy (specific financial knowledge). Second, we maintain that the efficiency with which savings are transferred intertemporally may improve over time, e.g. through the presence of a financial system. We use the model to analyze the relationship between financial literacy and economic growth in the long run. We show that the properties of the balanced growth path equilibrium critically depend on how human capital and financial literacy affect the efficiency of the financial system. Moreover, finance promotes long-run economic growth through two alternative channels, driven either by dynamics of financial returns or by human capital accumulation, respectively. By calibrating the model to the US economy over the 1950-2019 period, we quantitatively assess the effect of financial literacy on long-term growth and the relative magnitude of the two channels.

Recent evidence suggests that fertility rates are (and will be expected to remain in the future) below the replacement level for several countries and especially for the most technological advanced ones, which indicates that the World population will start decreasing sooner or later. In the light of this, we reconsider the Empty Planet result – Jones (2022) – and include human capital and class size effects in R&D endogenous growth models with decreasing population. We find that the introduction of human capital mitigates, or even overcomes, the Empty Planet result. In particular, under some mild conditions, our setting allows obtaining simultaneous long-run economic growth and secular productivity stagnation.