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Human capital and growth under political uncertainty

Author

Listed:
  • Nigar Hashimzade

    () (University of Exeter)

  • George Davis

    () (Miami University, Ohio)

Abstract

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.

Suggested Citation

  • Nigar Hashimzade & George Davis, 2006. "Human capital and growth under political uncertainty," Economics Bulletin, AccessEcon, vol. 15(1), pages 1-7.
  • Handle: RePEc:ebl:ecbull:eb-05o40013
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    References listed on IDEAS

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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.
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    3. 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.
    4. Darby, Julia & Li, Chol-Won & Muscatelli, V. Anton, 2004. "Political uncertainty, public expenditure and growth," European Journal of Political Economy, Elsevier, pages 153-179.
    5. Hans Gersbach, 2004. "Competition of Politicians for Incentive Contracts and Elections," Public Choice, Springer, vol. 121(1), pages 157-177, October.
    6. Brunetti, Aymo, 1997. " Political Variables in Cross-Country Growth Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 11(2), pages 163-190, June.
    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. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, pages 112-156.
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    10. Blankenau, William F. & Simpson, Nicole B., 2004. "Public education expenditures and growth," Journal of Development Economics, Elsevier, pages 583-605.
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    Cited by:

    1. Gersbach Hans, 2012. "Contractual Democracy," Review of Law & Economics, De Gruyter, pages 823-851.
    2. repec:cem:jaecon:v:20:y:2017:n:1:p:141-168 is not listed on IDEAS
    3. Atella, Vincenzo & Carbonari, Lorenzo, 2012. "When elders rule: is gerontocracy harmful for growth?," MPRA Paper 36574, University Library of Munich, Germany.
    4. Vincenzo Atella & Lorenzo Carbonari, 2017. "Is gerontocracy harmful for growth? A comparative study of seven European countries," Journal of Applied Economics, Universidad del CEMA, vol. 20, pages 141-168, May.

    More about this item

    Keywords

    Endogenous growth;

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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