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Growth and Parental Preference for Education in China

Chu, Angus C. and Furukawa, Yuichi and Zhu, Dongming (2015): Growth and Parental Preference for Education in China.

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Abstract

This study explores the implications of parental preference for education in an innovation-driven growth model that features an interaction between endogenous technological progress and human capital accumulation. Parents invest in children's education partly due to the preference for their children to be educated. We consider a preference parameter that measures the degree of this parental preference for education. We find that a society such as China in which parents place a high value on education accumulates more human capital, which is conducive to innovation, but the larger education investment also crowds out resources for R&D investment. As a result, a stronger parental preference for education has an inverted-U effect on the steady-state equilibrium growth rate due to the presence of both positive and negative effects. We also analytically derive the complete transitional path of the equilibrium growth rate and find that an increase in the degree of education preference causes an initial negative effect on growth. Furthermore, we explore the robustness of our results in a scale-invariant extension of the model and find that although the crowding-out effect of education preference gradually disappears in the long run, it continues to exert a negative effect on the transitional growth rate. Therefore, a society that has a stronger preference for education would have a lower initial growth rate but also a higher long-run growth rate.

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