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Inequality Traps and Human Capital Accumulation in South Africa

  • Miquel Pellicer

    (SALDRU, School of Economics, University of Cape Town)

  • Vimal Ranchhod

    (SALDRU, School of Economics, University of Cape Town)

We consider the interaction between human capital accumulation and inequality in South Africa. We start by discussing three alternative theoretical frameworks that relate inequality and investment decisions in post-secondary education; namely the 'perfect credit markets hypothesis', the 'imperfect credit markets hypothesis' and the 'social externalities hypothesis'. Each of these suggests different policy implications. We then consider which of these seems to have the most validity in the South African context, by presenting some original analysis as well as considering some of the related literature. Our findings suggest that South Africa is indeed in an 'inequality trap' situation and that credit markets do not work well. There is some evidence that social externalities compound the effects of the imperfect credit markets. We conclude with a discussion of possible policy directions. These include information on eligibility to tertiary institutes of education, awareness campaigns regarding public financing options, subsidization of application and registration fees and efforts to improve school quality at the primary and secondary levels.

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Paper provided by Southern Africa Labour and Development Research Unit, University of Cape Town in its series SALDRU Working Papers with number 86.

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Date of creation: 2012
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Handle: RePEc:ldr:wpaper:86
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  1. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April.
  2. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  3. Benabou, Roland, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 619-52, August.
  4. Bertola, G., 1998. "Marcroeconomics of Distribution and Growth," Economics Working Papers eco98/39, European University Institute.
  5. Anne Case & Angus Deaton, 1999. "School Inputs And Educational Outcomes In South Africa," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 1047-1084, August.
  6. Garlick, Robert, 2014. "Academic peer effects with different group assignment policies : residential tracking versus random assignment," Policy Research Working Paper Series 6787, The World Bank.
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