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Nigar Hashimzade and George Davis
''Human capital and growth under political uncertainty''
( 2006, Vol. 15 No.1 )
In this paper we show how political uncertainty may impede economic growth by reducing public investment in the formation of human capital, and how this negative effect of political uncertainty can be offset by a government contract. We present a model of growth with accumulation of human capital and government investment in education. We show that in a country with an unstable political system the government is reluctant to invest in human capital. Low government spending on education negatively affects productivity and slows growth. Furthermore, a politically unstable economy may be trapped in a stagnant equilibrium. We also demonstrate the role of a government retirement contract. Public investment in education and economic growth are higher when the future retirement compensation of the government depends on the future national income, in comparison with investment under zero or fixed retirement compensation.
Keywords: Endogenous growth
JEL: O4 - Economic Growth and Aggregate Productivity: General
E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General
Manuscript Received : Jan 27 2006 Manuscript Accepted : Jan 28 2006

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