Private education cost and economic growth

Abstract

Endogenous growth theory determines the growth rate within a model. Main determinants of growth rate are originated from externality of goods or increasing or constant return on production factor. Human capital is a factor which has increasing or constant return and that achieves permanent growth in the model. Because the main characteristic of human capital in the growth literature is similar to education, it is important to study the incentive on being educated in endogenous growth perspective. The model consists of three production sectors, labor market, and monetary market. Production sectors are composed of final goods, production goods and R&D sector. R&D sector generates new designs of production goods with creative labor force and sells it to firms in production goods sector. Firms in production goods sector make producer durable with designs and sell it final goods firm at monopoly price. The final goods firms supply the consumption goods to consumers under competitive environment. Two kinds of labor force exist in the model; operative labor force employed in the final goods sector and creative labor force employed in R&D sector. The difference in wages and education cost effect the distribution of labor force between two class. The model proves one stable steady-state. Charasteristics of the steady-state implies following propositions. First, the low education cost has positive effect on growth rate. Second, education loan has positive growth effect. Third, the country which has large labor force has high potential growth rate. And the last, in constast to previous studies no zero growth rate reachs in this model.