Why and How Education Affects Economic Growth

This paper suggests an additional channel through which education affects economic growth. If growth is driven by industrialization of production, where machines replace labor in a growing number of tasks, then operating these machines requires workers who are educated, namely literate and know arithmetic, whose human capital is less specific and more general. As a result, technology adoption depends negatively on wages of educated workers. Hence, economic growth depends negatively on the cost of education or on the barriers to acquire education. The model shows that if the cost of education is high, economic growth might be slow and even stop completely, creating a development trap.