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Private Education, Incomplete Credit Markets and Economic Growth

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Abstract

This paper provides evidence that private financing of education impacts economic growth differently at different levels of credit market development. Within an overlapping generations framework, we show that the effect of private financing of education on economic growth is positive when credit markets are adequately developed, but negative if sufficiently low levels of credit market development occur alongside relatively high private financing intensities. We also demonstrate conditions under which incomplete credit markets outperform, in terms of growth and dynamic efficiency, the case of complete markets. Our estimates of the reduced-form growth relationships are statistically significant and robust under various controls and samples. We argue that private financing of education coupled with differing levels of credit market development may shed light on large cross-country differences in savings and growth.

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  • Hatcher, Michael & Pourpourides, Panayiotis M., 2020. "Private Education, Incomplete Credit Markets and Economic Growth," Cardiff Economics Working Papers E2018/26, Cardiff University, Cardiff Business School, Economics Section.
  • Handle: RePEc:cdf:wpaper:2018/26
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    More about this item

    Keywords

    Education; Human Capital; Credit Constraints; Economic Growth.;
    All these keywords.

    JEL classification:

    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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