Time Discounting, Education, and Growth: Evidence and a Simple Model

In the paper we propose a new channel through which education may promote economic growth: education makes people more patient, and more patient people are more likely to save, invest, or send children to school. The paper first summarizes the results of field studies which we conducted in two very different poor countries: Uganda and India. In both countries the findings are consistent with the causal effect of education on the subjective discount rate. In the second part of the paper, we build a simple two-period human-capital-driven growth model where the subjective discount rate depends on the level of human capital. This new assumption gives rise to the possibility of multiple development regimes and the model illustrates a wider role of education in tackling possible development traps.