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Financial Hurdles for Human Capital Accumulation: Revisiting the Galor-Zeira Model

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  • Jun, Bogang
  • Hwang, Won-Sik

Abstract

Against the background of inconclusive evidence about the inequality–growth relation, this paper suggests that the level of inequality increases via the human capital channel with credit market imperfections and that this increasing inequality negatively affects economic growth. We expand the model presented by Galor and Zeira (1993) to represent the fact that the economy benefits from endogenous technological progress and that the government provides financial aid to reduce the financial hurdles for human capital accumulation. The presented empirical results, using Korean data from 1998 to 2008, imply that education plays a significant role in the divergence of household wealth over time and that the government’s financial aid package in the form of the new student loans program positively influences equality and short-run economic growth by promoting the number of skilled workers.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 46317.

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Date of creation: 31 Dec 2012
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Handle: RePEc:pra:mprapa:46317

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Keywords: Human Capital; Growth; Inequality;

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  1. Klaus Deininger & Lyn Squire, 1996. "A New Data Set Measuring Income Inequality," CEMA Working Papers 512, China Economics and Management Academy, Central University of Finance and Economics.
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  14. Susan M. Dynarski, 2003. "Does Aid Matter? Measuring the Effect of Student Aid on College Attendance and Completion," American Economic Review, American Economic Association, vol. 93(1), pages 279-288, March.
  15. Greiner, Alfred & Rubart, Jens & Semmler, Willi, 2004. "Economic growth, skill-biased technical change and wage inequality: A model and estimations for the US and Europe," Journal of Macroeconomics, Elsevier, vol. 26(4), pages 597-621, December.
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  17. Papageorgiou, Chris & Razak, Nor Azam Abdul, 2009. "Inequality, Human Capital and Development: Making the Theory Face the Facts," MPRA Paper 18973, University Library of Munich, Germany.
  18. Hongyi Li & Lyn Squire & Tao Zhang & Heng-fu Zou, 1999. "A Data Set on Income Distribution," CEMA Working Papers 575, China Economics and Management Academy, Central University of Finance and Economics.
  19. Theo Eicher & Cecilia García-Peñalosa & Tanguy Ypersele, 2009. "Education, corruption, and the distribution of income," Journal of Economic Growth, Springer, vol. 14(3), pages 205-231, September.
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