Escaping from poverty with compulsory schooling
Aurora Castro Teixeira ()
Pedro Cosme Vieira ()
Faculdade de Economia do Porto
R. Dr. Roberto Frias, s/n
4200-464 Porto
Abstract
It is an empirical regularity that low-level income countries manufacture low price commodities using simple technology, not investing in Research and Development (R&D) of new commodities whose prices would be higher (Ashton and Green, 1996).
This empirical regularity embodies a ‘poverty trap’ (Azariadis and Drazen, 1990; Azariadis, 1996) with two sides. On the families side, the use of simple technology and the absence of investment in R&D turn unprofitable that workers allocate a significant fraction of their time to school and, on firms side, it is unproductive to employ in R&D workers with a low schooling level.
Given that the market by itself is unable of overpassing this poverty trap, public authorities intervention is required (Teixeira, 1996), for instance, by imposing a minimum schooling period or by providing some kind of financial incentive to R&D investment.
In order to formally address this question, we present a theoretical model with several countries with two sectors in each country, the Commodities sector and the R&D sector, that use labour as input, being markets perfectly open and competitive.
In respect to the Commodities sector, we assume that its output is consumption goods and that there is no increase in its productivity when workers increase the time they devote to school.
Relatively to the R&D sector, we assume that its output is the invention of techniques that permits producing the higher quality consumption goods (vertical differentiation). Additionally, as this sector is more technology intensive, its productivity increases when workers increase the time they spend in school.
Using simulation methods, the main results are the following: 1) without public intervention, there is a development threshold above which workers increase their utility by attending school that, in turn, makes possible the emergence of the R&D sector. Bellow that threshold, countries do not develop, being kept into a poverty trap; 2) simulating the impact of public intervention, where authorities impose a compulsory level of schooling, in which workers are obliged to allocate a given percentage of their time to school, it results that a country is able to escape from the poverty trap.
References
Ashton, D. and F. Green (1996), Education, training and the global economy, Cheltenham, UK, Brookfield, US: Edward Elgar.
Azariadis,Costas (1996), “The Economics of Poverty Traps, Part One: Complete Markets", Journal of Economic Growth, 449-486.
Azariadis,Costas (2001), "The Theory of Poverty Traps: What Have we Learned?". Working Paper UCLA, July 2001.
Azariadis,Costas and Drazen, Allan (1990), “Threshold Externalities in Economic Development”, Quarterly Journal of Economics, 501-526.
Teixeira, A. (1996), Capacidade de inovação e capital humano. Contributos para o estudo do crescimento económico português, 1960-1991, Master Thesis, Faculdade de Economia, Universidade do Porto.
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