Differential borrowing constraints and investment in human capital

摘要

This paper investigates the way differences in the ability to borrow against future income affect the human capital accumulation process. By employing a general equilibrium model, it is shown that, as the fraction of a country's population constrained from borrowing increases, individuals invest less time in education, and thus the country-wide human capital declines. Empirical evidence offers support to the developed hypothesis. It is also shown that in countries characterized by high levels of government spending on education, borrowing constraints tend to be less pervasive for human capital accumulation than ones in which public spending on education is relatively low.