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Economic Development, Public Education Investment and Human Capital Accumulation
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TitleEconomic Development, Public Education Investment and Human Capital Accumulation  
AuthorCai Guowei and Liu Jianxiong  
OrganizationLingnan College of Sun Yat-sen University; Institute of Economics, Chinese Academy of Social Sciences, 
Key WordsPublic Education; Education Investment Efficiency; Income Risk; Liquidity Effect; Insurance Effect 
AbstractSince the Chinese reform and opening up, China's economy has maintained more than 30 years of growth miracle; however, the government investment in public education is far below the world average level. Human capital is one of the most important input factors for economic growth; while from the perspective of human development, the improvement in human capital is also the key purpose of economic development. This paper build an overlapping generation model of education investment, which illustrate that, as long as there exist income uncertainty, the level of education decided by residents would be less than the socially optimal level, and liquidity constraints will exacerbate the deviation. Government investment in public education has both liquidity effect and insurance effect, which can promote the residents’ investment in education, and improve the level of human capital in the community as a whole. The effects will be enhanced if there is promotion in the government's administrative efficiency. The empirical test by multinational data illustrates that simultaneously enhancing of the government's public investment in education and administrative efficiency can promote the accumulation of the human capital. This promoting role is more prominent in the low-income countries with larger income risk and liquidity constraint. Based on the theoretical deduction and empirical test of multinational data, this paper concludes that, with defective market economy; non-matching between human capital and income; apparent income risk faced by laborer; serious income inequality, China should improve the investment in public education and enhance the education investment efficiency to improve the human capital accumulation.  
Serial NumberWO614 
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