Educational Investments in a Dual Economy

Andrew G. Mude, Christopher Barrett, John McPeak and Cheryl Doss ()

Economica, 2007, vol. 74, issue 294, 351-369

Abstract: We present a simple two‐period, dual‐economy model in which migration options may affect the informal financing of educational investments. When credit contracts are universally available and perfectly enforceable, spatially varied returns to human capital have no effect on educational investment patterns. But when financial markets are incomplete and informal mechanisms with imperfect contract enforcement must fill the breach, attributes that affect the returns to education will affect educational lending and, consequently, educational attainment. Migration options can increase the returns to education, but can also choke off the informal finance on which poorer rural households may depend for long‐term, lumpy investments like children's education.

Date: 2007
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