Human Capital and the Quality of Education in a Poverty Trap Model

Abstract

This paper presents a model of a poverty trap that is caused by an unequal initial income and human capital distribution, and differences in the quality of education between children from the more and less advantaged social sectors. Under certain conditions, the economy converges to a situation with three stable and simultaneous equilibria, two of which constitute poverty traps, lowering the economy’s current and steady-state aggregate output level as well as its growth rate. The model suggests that a policy oriented to equalizing the quality of education would, in the long run, have potential in reducing initial inequalities.