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International Capital Market Integration, Educational Choice and Economic Growth

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  • Hartmut Egger
  • Peter Egger
  • Josef Falkinger
  • Volker Grossmann

Abstract

This paper examines the impact of capital market integration (CMI) on higher education and economic growth. We take into account that participation in higher education is non-compulsory and depends on individual choice. Integration increases (decreases) the incentives to participate in higher education in capital-importing (-exporting) economies, all other things equal. Increased participation in higher education enhances productivity progress and is accompanied by rising wage inequality. From a national policy point of view, education expenditure should increase after integration of similar economies. Using foreign direct investment (FDI) as a measure for capital flows, we present empirical evidence which largely confirms our main hypothesis: An increase in net capital inflows in response to CMI raises participation in higher education and thereby fosters economic growth. We apply a structural estimation approach to fully track the endogenous mechanisms of the model.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1630.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1630

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Keywords: capital mobility; capital-skill complementarity educational choice; education policy; economic growth; wage income inequality;

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Cited by:
  1. Francoise Forges & Frederic Koessler, 2006. "Long Persuasion Games," THEMA Working Papers, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise 2006-01, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  2. Ben J. Heijdra & Jenny Ligthart, 2006. "The Transitional Dynamics of Fiscal Policy in Small Open Economies," CESifo Working Paper Series 1777, CESifo Group Munich.
  3. Spiros Bougheas & Richard Kneller & Raymond Riezman, 2009. "Optimal Education Policies and Comparative Advantage," CESifo Working Paper Series 2631, CESifo Group Munich.

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