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Maria Kazakova 1, Ivan Lyubimov 2, Kristina Nesterova 2
  • 1 The Russian Presidential Academy of National Economy and Public Administration, 82/1, Prospect Vernadskogo, Moscow, 119571, Russian Federation
  • 2 The Russian Presidential Academy of National Economy and Public Administration, 82/1, Prospect Vernadskogo, Moscow, 119571, Russian Federation

Does a Single Reform's Success Ensure Faster Growth? Weak Institutions as a Cause of Reform Failure

2016. Vol. 20. No. 4. P. 624–654 [issue contents]
In this paper we study how the timing of reforms affects economic growth. More specifically, we use a growth model with technological progress and human capital accumulation to analyze the effect of an education reform that is aimed at delivering the human capital required for spurring economic growth. We show that the reform’s impact on the stock of human capital might not result in higher growth rates if, at the same time, demand for high-skilled labor is limited. The latter might be a result of weak institutions restricting firms' incentives to invest in technology that works in tandem with high-skilled employees. This, in turn, may lead to weak demand for high-skilled labor, causing a reform that stimulates high skilled labor supply to fail. Moreover, being desperate to find a matching employment, a part of high-skilled labor might flow abroad in search for better job opportunities. Our model is structured as follows. In the baseline model growth is impeded by a shortage of educational service, and having eliminated that constraint, one can reach a higher growth rate for the economy. The model is extended further by accounting for poor management practices that make the level of technology lag behind and also reduce demand for human capital. Under such assumptions, a reform promoting educational service supply may have a limited effect. Thus, we conclude that only if an advance in the school system is combined with a better control over the behavior of management, will an educational reform unambiguously lead to faster growth. We consider the economy of Russia as an illustration of our main findings to emphasize that reforms in the most binding field have to be prioritized.
Citation: Kazakova M., Lyubimov I., Nesterova K. (2016) Garantiruet li uspekh otdel'noy reformy uskorenie ekonomicheskogo rosta? Nedostatochno razvitye instituty kak prichina provala reform [Does a Single Reform's Success Ensure Faster Growth? Weak Institutions as a Cause of Reform Failure]. HSE Economic Journal , vol. 20, no 4, pp. 624-654 (in Russian)
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