Availability of higher education and long-term economic growth

In the present paper, we examine the economic growth effects of a limited availability of higher education in a simple endogenous growth model with overlapping generations. It is shown that this limited availability might promote economic growth by increasing aggregate savings. If the supply of human capital is restricted, its price remains high and a large share of aggregate output is distributed to young households, which need to save for their old age. When this growth-enhancing effect is strong enough, an excessive increase in availability leads to a shortage of investable funds, which substantially reduces economic growth.