Growth, income distribution and human capital accumulation with imperfect credit markets

This dissertation studies the relationship between economic growth and income distribution through the role of human capital. What distinguishes this dissertation from the literature of human capital accumulation is that we assume credit markets are imperfect. The achievements of this study are to demonstrate the impacts of borrowing constraints due to the imperfections of credit markets on the accumulation of human capital and how this will in turn affect economic performance. Some policy experiments are evaluated to determine the sensitivity of growth and income distribution to tax rates, financial reforms as well as voucher programs.; In chapter 1, I analyze economic performance under two different education regimes: a private education regime and a public education regime. In chapter 2, I extend the model of a private education regime from chapter 1 to deal with uncertainty in human capital accumulation. In chapter 3, a mixed educational system is analyzed to quantify the impact of relative sizes of the private and public education sectors on growth and income inequality.; Chapter 1 finds that for a very poor economy, a public education regime dominates a private education regime because it overcomes borrowing constraints and avoids a poverty trap while income inequality decreases over time. But for a very rich economy, which education regime is better depends on the structural parameters of the economy under each education regime. For example, a public education regime will generate higher growth rates than a private education regime if tax rates are high enough. However, income inequality decreases in both education regimes for a very rich economy. Chapter 2 demonstrates that credit market imperfections and the initial distribution of human capital will govern the pattern of income inequality while the distribution of innate ability will determine the ergodic steady state distribution in the long-run. Simulation results of chapter 3 show that government is able to control economic performance (high economic growth or low income inequality) by changing the size and structure of educational system. If the government wants to reduce income inequality, it should adopt policies that increase the enrollment rate in public schools. However, fast growth takes place if the enrollment rate in private schools is high and credit markets are liberalized.