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Education Policies to Revive a Stagnant Economy: The Case of Sub- Saharan Africa

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Author Info
Elizabeth M. Caucutt (University of Rochester)
Krishna B. Kumar (University of Southern California)

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Abstract

In this paper, we argue that the condition of education and the economy of the low performing sub-Saharan African countries can be characterized as a stagnant steady state -- a "trap". We present a simple heterogeneous-agent model in which high costs of education relative to income and the skill premium can cause the economy to be trapped in such a steady state with minimal educational attainment. We calibrate the model to available data from the sub-Saharan African countries to study policies that could potentially free these trapped economies and set them on a path to a higher steady state. We find that a tax and subsidy scheme that redistributes resources at the trap from poor households with lower ability children to those with higher ability children can pry the economy out of the trap, thus freeing it from dependence on foreign aid in order to achieve the same goal. In addition to the direct cost, a portion of the indirect cost also needs to be subsidized. Moreover, such a policy outperforms the abolition of child labor and the institution and enforcement of compulsory education laws when expenditure neutral welfare comparisons are made.

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Paper provided by EconWPA in its series Development and Comp Systems with number 0304002.

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Length: 37 pages
Date of creation: 04 Apr 2003
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Handle: RePEc:wpa:wuwpdc:0304002

Note: Type of Document - Acrobat PDF; prepared on IBM PC ; to print on HP PostScript; pages: 37; figures: included
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Related research
Keywords: Dynamic heterogeneous-agent models; Economic stagnation; Education subsidies; Calibration of a trap;

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Find related papers by JEL classification:
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
I22 - Health, Education, and Welfare - - Education - - - Educational Finance

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Elizabeth M. Caucutt & Krishna B. Kumar, 2004. "Evaluating Explanations for Stagnation," Development and Comp Systems 0409002, EconWPA. [Downloadable!]
    Other versions:
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