Education and Growth with Endogenous Debt Constraints

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Education and Growth with Endogenous Debt Constraints

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David, DE LA CROIX (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES),Belgium and FNRS (Belgium))

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David de la Croix

Abstract

When future human capital cannot be alienated, households are allowed to borrow up to the point where it is in their own interest not to default. In such a framework, endogenous borrowing limits arise as the outcome of individual rationality constraint. In a model where education is the engine of growth, we show that endogenous borrowing constraints imply global indeterminacy. Comparing outcomes across the various equilibria we show that the relation between growth and yields is hump-shaped. Maximum growth can arise in an equilibrium with binding borrowing constraints, specially if the elasticity if human capital to education spending is large. Deepening financial markets promotes long-run growth in the case of a poverty trap, but not necessarily otherwise.

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 2004020.

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Date of creation: 01 Oct 2004
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Handle: RePEc:ctl:louvir:2004020

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Other versions of this item:

Article
- David Croix & Philippe Michel, 2007. "Education and growth with endogenous debt constraints," Economic Theory, Springer, vol. 33(3), pages 509-530, December. [Downloadable!] (restricted)
Paper
- DE LA CROIX, David & MICHEL, Philippe, 2004. "Education and growth with endogenous debt constraints," CORE Discussion Papers 2004074, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]

Find related papers by JEL classification:
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-02-13 (All new papers)
NEP-DEV-2005-02-13 (Development)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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Other versions:
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- Michele Boldrin & Ana Montes, 2004. "The intergenerational state: education and pensions," Staff Report 336, Federal Reserve Bank of Minneapolis. [Downloadable!]
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Costas AZARIADIS & David DE LA CROIX, 2002. "Growth or equality ? Losers and gainers from financial reform," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002036, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
Other versions:
- AZARIADIS, Costas & de la CROIX, David, 2002. "Growth or equality ? Losers and gainers from financial reform," CORE Discussion Papers 2002058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
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Erasmo Papagni, 2008. "The Long-run Effects of Household Liquidity Constraints and Taxation on Fertility, Education, Saving, and Growth," Discussion Papers 11_2008, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy. [Downloadable!]

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