Report

2015-05-28

Southern Africa Labour and Development Research Unit

University of Cape Town

We consider the interaction between human capital accumulation and inequality in South Africa. We start by discussing three alternative theoretical frameworks that relate inequality and investment decisions in post-secondary education; namely the 'perfect credit markets hypothesis', the 'imperfect credit markets hypothesis' and the 'social externalities hypothesis'. Each of these suggests different policy implications. We then consider which of these seems to have the most validity in the South African context, by presenting some original analysis as well as considering some of the related literature. Our findings suggest that South Africa is indeed in an 'inequality trap' situation and that credit markets do not work well. There is some evidence that social externalities compound the effects of the imperfect credit markets. We conclude with a discussion of possible policy directions. These include information on eligibility to tertiary institutes of education, awareness campaigns regarding public financing options, subsidization of application and registration fees and efforts to improve school quality at the primary and secondary levels.

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