How to model a child in school? A dynamic macro-simulation study for Tanzania

Universal primary education is regarded as one of the key pillars of sustainable development. The positive in_x001d_uence of education on growth is supported by many empirical studies. However, the e_x001b_ects of education on labor supply, poverty reduction and welfare as well as subsistence agriculture are hardly traceable in an econometric setup, given the complex interactions and the long-term nature of education. An economy-wide dynamic simulation model provides a well-suited toolkit to analyze the e_x001b_ects of increased school provision in these aspects and provides insights into the intertemporal aspects of the schooling decision of children. We develop a macro-economic model which explicitly includes education and human capital allocation and takes into account that the possibility of child labor increases the opportunity costs of human capital formation. In an application for Tanzania, we _x001c_nd that a large scale investment program in education might have a negative e_x001b_ect on both GDP growth and high skilled labor supply in the short-term but leads to higher GDP and welfare as well as signi_x001c_cantly reduced child labor supply in the medium to long term.