Working Paper: CEPR ID: DP3517
Authors: Michael Spagat
Abstract: Transition economies have an initial condition of high human capital relative to GDP per capita, giving them high growth potential. In the model, at a good equilibrium a large number of children of well-educated parents take advantage of their family backgrounds and invest substantially in their own human capital. At a bad equilibrium, past educational achievements are wasted as children fail to build upon their parents’ achievements. Policies affecting the education system and the returns to human capital can be decisive in determining the outcome. The model provides a basis for distinguishing development economics from transition economics.
Keywords: development; education; growth; human capital; multiple equilibria; transition
JEL Codes: D10; I20; J24; O10; O15; P2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| parental human capital (h0i) (J24) | children's human capital investment (hi1) (J24) |
| government policies (H59) | good or bad equilibrium (D59) |
| initial human capital conditions (J24) | educational investment decisions (I26) |
| educational systems (I21) | good or bad equilibrium (D59) |
| returns to education (I26) | good or bad equilibrium (D59) |