Human capital investment and population growth: An overlapping generations analysis for Malawi

Recent work on human capital accumulation has tended to abstract from population change. This is a reasonable simplification when analysing economies with relatively static populations, such as high income countries. However, many low income countries are undergoing rapid population change, which significantly influences the impact of human capital policies. This is acerbated as the rate of expansions of education systems is limited due to funding constraints and ability to train skilled teaching staff. To analyse this issue we construct an overlapping generations (OLG) numerical simulation model to simulate the simultaneous impact of human capital accumulation and population change. We calibrate this for Malawi, a small sub-Saharan country, which has made significant progress in expanding its education system, but is also projected to experience rapid population growth. Furthermore, there is evidence to suggest that demographics are not invariant of education policies. We explore how expansion of education (in particular secondary education of women) could influence population growth and how this modifies the impact of human capital policies. In aggregate we expect expanding education to have a positive economic impact. However, ex ante it is more difficult to predict impact of population growth due to influence of fixed factors such as land. On a per capita basis we expect education to have a positive impact, but population growth to dilute the per capita human capital accumulation. We are interested in exploring where the pivotal point lies w.r.t. to the growth of GDP per capita how this compares to current projections for population and education growth in Malawi.