Education and Poverty in a Solow Growth Model
Thomas Bassetti†

∗

Abstract In this paper, we study the effect of education on economic growth. In particular, we show how education may generate nonlinearities in the process of economic growth. In our model, the assumption of a non constant human capital obsolescence rate causes non constant returns to education in the production of human capital. This will allow us to identify the conditions under which a poverty trap may arise in a Solow growth model. As we will see, a sufficient investment in education may help poor countries to escape from this trap. Subsequently, we will conduct some econometric analyses to prove that, at the aggregate level, our theoretical conclusions are confirmed by evidence.

Keywords: Economic growth, education, poverty trap. JEL: E13, I2, O4.

∗ For helpful comments, I am grateful to W. Baumol, W. Brock, D. Fiaschi, A. M. Lavezzi, and seminar participants at the University of Pisa in Pisa. The usual disclaimer applies. † Dipartimento di Scienze Economiche, Universit` di Pisa, Via Ridolfi 10, 56100 Pisa Italy, e-mail: basa setti@ec.unipi.it.

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Introduction

In macroeconomic literature, education is considered one of the most important inputs to produce human capital, which can be defined as: ”the stock of accumulated skills and experience that make workers more productive,” [Stiglitz and Boadway (1994)]. Traditionally, human capital does not play an explicit role in the exogenous growth theory, while it is central in the endogenous growth theory.1 Nevertheless, the exogenous growth model has been recently extended to the inclusion of human capital by Mankiw, Romer and Weil (hereafter MRW) (1992). By using a cross-country analysis, they show that data are fairly consistent with a Solow model augmented to take into account human capital as a factor of production. They obtain a rather satisfactory estimate of the aggregate production function. In this framework, education