The impact of structural adjustment policies on human capital investment in developing countries.

Summary This paper analyzes the consequences of structural adjustment policies on human capital investment using the theoretical support of endogenous growth models. In the first two parts we review the theory of human capital and structural adjustment policies, and their empirical effects on human capital accumulation. In the third part we develop three original models: the first two study the evolution of the demand for education and the third studies the supply of education. In a one-country model with overlapping generations and a segmented labor market, we show that reducing public social spending during structural adjustment can lead to both a reduction in the demand for education and a reduction in long-term growth. In a two-country model, where education, tax and wage policies differ and labor is internationally mobile, we show that steps can under certain conditions induce a brain drain and a decline in long-run growth. In a supply-side model, where we include foreign aid for education, we show that governments should favor education spending over infrastructure spending. Moreover, when we consider two modes of aid redistribution (individual or collective), we show that the best choice is conditional on the national public education effort.