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Availability Of Higher Education And Long-Term Economic Growth


This paper examines the relationship between the availability of higher education and an economy fs long-term growth rate in a simple endogenous growth model with overlapping generations. Under certain conditions, an increased availability of higher education narrows the rate-of-return difference between human and physical capital investments. This reduces the share of income received by the younger generation, negatively affecting aggregate savings in subsequent periods, and thereby causing a substantial slowdown in the long-term growth rate. Such a paradoxical slowdown is endemic to developed economies, where higher education plays a central role in accumulating human capital. Although the recovery from such a slowdown entails a major restructuring of educational institutions, the authority may not take preventative measures against it, being dazzled by a temporary boom during its early stages.

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Article provided by Japanese Economic Association in its journal Japanese Economic Review.

Volume (Year): 59 (2008)
Issue (Month): 2 ()
Pages: 156-177

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Handle: RePEc:bla:jecrev:v:59:y:2008:i:2:p:156-177
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