Escaping from poverty through compulsory schooling

Abstract

It is an empirical fact that low-level income countries manufacture low price commodities, using simple technology, with no investment in Research and Development. This constitutes a poverty trap where it is not advantageous for workers to get further training and poorly educated/trained workers are not productive to the R&D sector. We present a model with two sectors, the Commodities sector and the R&D sector, which use labour as input. Applying computation techniques we investigate the impact of compulsory schooling on development. We conclude that the imposition of a minimum level of schooling would make it possible for poorly developed countries to escape from the poverty trap. This result is also relevant for intermediate developed countries such as Portugal where the extension of the existing minimum level of compulsory schooling would permit to overcome the vicious cycle of low-skills-lowinnovation that some industries and regions are stuck.