The Human Capital Constraint: Of Increasing Returns, Education Choice and Coordination Failure

If technological innovations in the North can be costlessly imitated by educated workers in the South, and if education decisions are endogenous, why aren't all countries well-educated and rich? This paper explores a possible answer: if technologically advanced sectors, operating under increasing returns to scale, need a minimum pool of educated workers to commence production, then coordination failure can arise in the choice of education. A simple two-sector model is shown to yield multiple equilibria: countries that perform well educationally and adopt technology successfully can co-exist with countries that fail in both endeavors.