Human Capital, Instability and Foreign Investment in Transition Economies

Michael Spagat

Economic Change and Restructuring, 1995, vol. 28, issue 2-3, 185-203

Abstract: I argue that the West should lend money to the former Soviet Union and Eastern Europe (FSUEE) to prevent excessive deterioration of its human capital stock. Such loans can improve the recipient countries' welfare by allowing them to enjoy the long-run benefits of a large human capital stock without incurring the costs of maintaining these stocks through lean economic times. The West can receive a fully competitive rate of return on these loans, and future foreign investors will be able to earn high rates of return by supplying physical capital to a newly stabilized FSUEE with abundant human capital. Copyright 1995 by Kluwer Academic Publishers

Date: 1995
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