Public Investment in a Hierarchical Education System with Capital-Skill Complementarity

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In this study I bring together two different literatures: the hierarchical education literature and the skill-biased growth literature. In an overlapping-generations model I introduce capital-skill complementarity into a hierarchical education system. I obtain results that differ qualitatively from previous studies, among which are the following: (i) At earlier stages of development, basically educated labor contributes to growth more than highly educated labor. The opposite occurs at later stages. (ii) Even when all individuals acquire higher education, a growth-enhancing policy subsidizes higher education. (iii) In a growth-enhancing policy, the share of public resources allocated to basic education declines as the economy grows. (iv) The enrollment rate evolves in an S-shaped pattern, as occurred in several OECD countries.

Original languageEnglish
Pages (from-to)757-784
Number of pages28
JournalMacroeconomic Dynamics
Issue number3
StatePublished - 1 Apr 2017

Bibliographical note

Publisher Copyright:
© 2016 Cambridge University Press.


  • Education and Development
  • Government Educational Expenditures
  • Human Capital
  • Life-Cycle Models

ASJC Scopus subject areas

  • Economics and Econometrics


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