Investment in education: do economic volatility and credit constraints matter?

Recent research has focused on the effects of economic volatility on the investment in physical capital; this paper shows that economic volatility and the lack of financial markets have a negative effect also on the accumulation of human capital. Our evidence, drawn from cross-country and panel regressions is that average secondary enrollment in the period 1970-1972 is negatively affected by: the lack of financial markets, income or employment volatility, and income inequality. Our results are robust to: different specifications of volatility, the inclusion of public expenditure in education, country specific effects, and different sets of regressors. (C) 1998 Elsevier Science B.V.