Schooling and economic growth: A King-Rebelo experiment with human capital

Education is added to the standard Neoclassical growth model by calibrating a human capital technology to the empirical evidence on schooling. Simulation experiments patterned after King and Rebelo (1993. American Economic Review 83, 905-931) are conducted. When agents act as if they are infinitely lived, interest rates are too high and the rise in school spending is too weak over the transitional growth path. When schooling is inefficiently low due to binding intergenerational credit constraints, interest rates deviate only moderately from the steady-state level and the historical rise in school spending is fully explained. (C) 2000 Elsevier Science B.V. All rights reserved. JEL classification: O31; J24.