An Endogenous Growth Model with a Health Sector

We develop an overlapping generations model with endogenous growth and a health sector, in order to explain three secular facts characteriz- ing the U.S. economy: a substantial increase in life expectancy, a rise in the share of GDP devoted to health-related expenditures as well as an increase in the relative price of medical goods. We show how to inter- pret these observations as the equilibrium outcome of a model in which technological progress through quality improvements is endogenously directed to the sector producing medical goods.