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Human capital and growth under political uncertainty

Listed author(s):
  • Nigar Hashimzade

    ()

    (University of Exeter)

  • George Davis

    ()

    (Miami University, Ohio)

In this paper we show how political uncertainty may impede economic growth by reducing public investment in the formation of human capital, and how this negative effect of political uncertainty can be offset by a government contract. We present a model of growth with accumulation of human capital and government investment in education. We show that in a country with an unstable political system the government is reluctant to invest in human capital. Low government spending on education negatively affects productivity and slows growth. Furthermore, a politically unstable economy may be trapped in a stagnant equilibrium. We also demonstrate the role of a government retirement contract. Public investment in education and economic growth are higher when the future retirement compensation of the government depends on the future national income, in comparison with investment under zero or fixed retirement compensation.

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File URL: http://www.accessecon.com/pubs/EB/2006/Volume15/EB-05O40013A.pdf
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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 15 (2006)
Issue (Month): 1 ()
Pages: 1-7

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Handle: RePEc:ebl:ecbull:eb-05o40013
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  1. Nijkamp, Peter & Poot, Jacques, 2004. "Meta-analysis of the effect of fiscal policies on long-run growth," European Journal of Political Economy, Elsevier, vol. 20(1), pages 91-124, March.
  2. Glomm, Gerhard & Ravikumar, B., 1997. "Productive government expenditures and long-run growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 183-204, January.
  3. Darby, Julia & Li, Chol-Won & Muscatelli, V. Anton, 2004. "Political uncertainty, public expenditure and growth," European Journal of Political Economy, Elsevier, vol. 20(1), pages 153-179, March.
  4. Hans Gersbach, 2004. "Competition of Politicians for Incentive Contracts and Elections," Public Choice, Springer, vol. 121(1), pages 157-177, October.
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  6. Blankenau, William F. & Simpson, Nicole B., 2004. "Public education expenditures and growth," Journal of Development Economics, Elsevier, vol. 73(2), pages 583-605, April.
  7. Hugo A. Hopenhayn & Maria E. Muniagurría, 1993. "Policy variability and economic growth," Economics Working Papers 30, Department of Economics and Business, Universitat Pompeu Fabra.
  8. Boadway, Robin & Marceau, Nicolas & Marchand, Maurice, 1996. "Investment in Education and the Time Inconsistency of Redistributive Tax Policy," Economica, London School of Economics and Political Science, vol. 63(250), pages 171-189, May.
  9. Hugo A. Hopenhayn & María E. Muniagurria, 1996. "Policy Variability and Economic Growth," Review of Economic Studies, Oxford University Press, vol. 63(4), pages 611-625.
  10. Brunetti, Aymo, 1997. " Political Variables in Cross-Country Growth Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 11(2), pages 163-190, June.
  11. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
  12. Gersbach, Hans & Kleinschmidt, Tobias, 2004. "Designing Democracies for Sustainability," CEPR Discussion Papers 4623, C.E.P.R. Discussion Papers.
  13. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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