Differential borrowing constraints and investment in human capital

This paper investigates the way differences in the ability to borrow agains t Future income affect the human capital accumulation process By employing a general equilibrium model, it is shown that, as the fraction of a country 's population constrained from borrowing increases, individuals invest less time in education, and thus the country-wide human capital declines. Empir ical evidence offers support to the developed hypothesis. It is also shown that in countries characterized by high levels of government spending on ed ucation, borrowing constraints tend to be less pervasive for human capital accumulation than ones in which public spending on education is relatively low.