Jun, Bogang, and Won-Sik Hwang. "Financial Hurdles for Human Capital Accumulation: Revisiting the Galor-Zeira Model." (2012).

Abstract

Against the background of inconclusive evidence about the inequality–growth relation, this paper suggests that the level of inequality increases via the human capital channel with credit market imperfections and that this increasing inequality negatively affects economic growth. We expand the model presented by Galor and Zeira (1993) to represent the fact that the economy benefits from endogenous technological progress and that the government provides financial aid to reduce the financial hurdles for human capital accumulation. The presented empirical results, using Korean data from 1998 to 2008, imply that education plays a significant role in the divergence of household wealth over time and that the government’s financial aid package in the form of the new student loans program positively influences equality and short-run economic growth by promoting the number of skilled workers.