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Human capital accumulation, income protection insurance and poverty reduction in the least developed countries
Author(s) -
Liu Weiguang
Publication year - 2021
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/1467-8454.12208
Subject(s) - poverty , human capital , economics , poverty reduction , investment (military) , poverty trap , capital (architecture) , economic growth , geography , archaeology , politics , political science , law
Insurance is very important for the least developed countries. In an overlapping generation framework without saving, we analysed the effect of a special form of health insurance: Income protection insurance (IPI). We clarified how IPI coverage influences human capital accumulation through education investment under certain economic conditions. We have three main findings: (a) Under the assumption that an economy has the potential to escape from the poverty trap, we find that if individuals can choose IPI coverage freely, IPI will not help the economy escape from poverty; (b) if we can lower the coverage to an optimal level, IPI will help the economy escape from poverty; and (c) the coverage preferred by individuals will increase with unhealthy probability, decrease with education efficiency and be independent of the discount rate, and the growth‐optimal coverage proportion will increase with the discount rate and decrease with education efficiency. The paper provides some policy implications for reducing poverty in some of the least developed countries through insurance tools.