Resource title

Education, growth, and redistribution in the presence of capital flight

Resource image

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Resource description

We construct an overlapping generations model to study the effect of capital controls on human capital investments and the incidence of redistributive politics in a growing economy. We argue that the conventional wisdom linking higher capital controls to lower growth is reproduced only when an economy is sufficiently developed. For under-developed countries, higher capital controls are beneficial for human capital accumulation suggesting that the wisdom does not apply. In an augmented version of the model, we show that a modern sector, characterized by positive levels of investment in education, may not exist unless capital controls are sufficiently high. In particular, higher capital controls make it feasible for a modern sector to exist by lowering the threshold income level required by workers to invest in human capital. These results are consistent with recent evidence suggesting that capital account liberalization positively affects growth only after a country has achieved a certain threshold level of absorptive capacities.

Resource author

Debajyoti Chakrabarty, Areendam Chanda, Chetan Ghate

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/24919

Resource license

Adapt according to the presented license agreement and reference the original author.