Human Capital and the Future of Transition Economies

Transition economies have an initial condition of high human capital relative to GDP per capita. But they will not necessarily realize their latent high growth potential. In the model, at a good equilibrium a large number of children of well-educated parents take advantage of their family backgrounds and invest substantially in their own human capital. At a bad equilibrium, past educational achievements are wasted as children fail to build upon their parents’ achievements. I argue that this sort of multiple equilibria provides a basis for distinguishing development economics from transition economics. JEL Numbers: P2, O1, O15, I2, D1, J24