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Education, political instability, and growth

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  • James A. Kahn
Abstract
Empirical evidence suggests a positive association between income levels and growth rates on the one hand, and political stability and educational attainment on the other. This paper develops a simple finite--horizon overlapping growth model that in the absence of institutions for precommitment has a political equilibrium with inefficiently low growth, low educational attainment, and high returns to schooling. In the model, the laissez-faire growth rate is inefficient due to an intergenerational externality in the decision to accumulate knowledge. We then contrast the efficient growth rate with the outcome when there is a sequence of governments with an objective that reflects the preferences of the individuals currently alive. The result is an equilibrium in which growth remains inefficiently low because future agents are unable to reward those currently alive to induce them to accumulate knowledge. The ability to achieve higher efficient growth hinges on either the government's ability to set policies that cannot be undone by subsequent governments, or on an alternative ``trigger strategy'' equilibrium in which each government believes it will be punished by the next if it deviates from the optimal policy.

Suggested Citation

  • James A. Kahn, 1997. "Education, political instability, and growth," Research Paper 9737, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednrp:9737
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    References listed on IDEAS

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    1. Persson, Mats & Persson, Torsten & Svensson, Lars E O, 1987. "Time Consistency of Fiscal and Monetary Policy," Econometrica, Econometric Society, vol. 55(6), pages 1419-1431, November.
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    Cited by:

    1. James A Kahn & Jong-Soo Lim, 2001. "Finite Horizons, Political Economy, and Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(1), pages 1-25, January.

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    More about this item

    Keywords

    Income; Political science; Education; Economic development;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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