Human capital and the future of transition economies

Compared to developing economies, transition economies have high human capital relative to GDP per capita initially, which provides the potential for growth. We present a model in which a large number of children of well-educated parents take advantage of their family backgrounds and invest substantially in their own human capital in the good equilibrium. However, in the bad equilibrium, past educational achievements are wasted because children fail to build upon their parents' achievements. Policies and economic conditions are shown to be decisive in determining the equilibrium. This model provides a basis for distinguishing transition economics from development economics. Journal of Comparative Economics 34 (1) (2006) 44-56.