General Equilibrium Effects of Investments in Education and Changes in the Labor Force Composition

In this paper, a novel approach to modelling education and human capital formation in computable general equilibrium model is proposed. Rather than adopting microeconomic-based assumptions of formation, the method based on an empirical relationship between labor force composition expenditure services. It found some robust correlation workers’ shares educational expenditure, real terms per capita. To assess implications these findings, impact increase public devoted simulated conventional CGE for Ethiopia. The simulation results highlight existence multiplicative effect, such that overall supply services, final state, more three times larger initial demand push. This comes associated with positive shock, entailing gains productivity, income, welfare, as well changes structure economy.