Does the impact of private education on growth differ at different levels of credit market development?

Abstract

AbstractUsing an overlapping generations model, we show that the impact of private financing of education on growth depends on credit market development, being positive when credit markets are adequately developed but negative if sufficiently low levels of credit market development occur alongside relatively high private financing intensities. Employing cross‐country data, we find that reduced‐form growth relationships are statistically significant and robust under various controls and samples. We also lay out conditions under which economies with missing credit markets are dynamically efficient and outperform, in terms of growth, economies with complete credit markets. The latter may explain large cross‐country differences in savings and growth, while facilitating the evaluation of policies on financing education.