The objective of this paper is to develop an empirical study that considers the aspects of the Brazilian States' institutions and their impact on youth education and on population illiteracy rate. We define institutions as being educational policies, government efficiency (cost), the structure of the economy and the market for human capital in each state. The theoretical model is borrowed from Dias and McDermott (2006). We test the model using a panel data approach for the years 1991-2000. In general our results are that: i) education investment made by each state showed to be significant and effective in curbing down the illiteracy rate; however, it showed to be negatively correlated in supporting youth high school education; ii) the States' government cost showed to have a negative influence on youth knowledge accumulation beyond eight years; iii) the rate of knowledge accumulation among states are heterogeneous because their differences in rate of return to education and the stock of human capital with eleven years or more of education. This last result together with the level of development, level of technology and physical capital, showed to be the foremost important element for youth knowledge accumulation and illiteracy rate reduction.
institutions; education; illiteracy; panel data; states
