Is financial openness bad for education? A political economy perspective on development

This paper presents a simple model of the links between education, democrat ization and economic development. In a context of imperfect capital markets , we investigate the incentives for a capitalist oligarchy to subsidize the education of poor workers and to initiate a political transition. It is sh own that international financial liberalization, while stimulating physical capital accumulation, reduces the capitalist elite willingness to subsidiz e domestic human capital accumulation in the medium run, It thus delays, wi thout necessarily impeding the process of democratization. (C) 2000 Elsevie r Science B.V, All rights reserved. JEL classification: F2; H1; I2; O1.