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Human Capital Externalities: Evidence from the Transition Economy of Russia

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  • Alexander Muravyev

Abstract

The paper tests for the existence of human capital externalities, more precisely those stemming from higher education, using a micro-level approach: the Mincerian wage regression augmented with the average level of education in a local geographical area (city). To solve identification problems arising due to endogeneity of average education the study exploits a natural experiment provided by the process of economic transition in the former communist economies. We argue that the educational structure of cities under the central planning was determined by the government rather than the market; thus the average educational attainment in cities at the end of communism can be regarded as exogenous with respect to the wages prevailing after the start of transition. The identification strategy based on the use of the pre-transition average education is applied to data from the Russia Longitudinal Monitoring Survey, RLMS. Empirical results are consistent with the presence of significant human capital (educational) externalities in the Russian economy. According to the estimates, one percent increase in the college share in a city results in the increase of city residents' wages by about 1.5 percent. The result proves to be robust to several changes in the empirical specification.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.44761.de/dp629.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 629.

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Length: 35 p.
Date of creation: 2006
Date of revision:
Handle: RePEc:diw:diwwpp:dp629

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Keywords: Human Capital Externalities; Cities; Russia;

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References

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  1. Münich, Daniel & Svejnar, Jan & Terrell, Katherine, 2000. "Returns to Human Capital under the Communist Wage Grid and During the Transition to a Market Economy," IZA Discussion Papers 122, Institute for the Study of Labor (IZA).
  2. Yuri Andrienko & Sergei Guriev, 2003. "Determinants of interregional mobility in Russia: evidence from panel data," Working Papers w0027, Center for Economic and Financial Research (CEFIR).
  3. Victoria Vernon, 2002. "Human Capital in Transitional Russia," Labor and Demography, EconWPA 0204003, EconWPA.
  4. Antonio Ciccone & Giovanni Peri, 2002. "Indentifying human capital externalities: Theory with an application to US cities," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 611, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2005.
  5. Gilles Duranton, 2010. "Urban Labor Economics," Journal of Economic Geography, Oxford University Press, Oxford University Press, vol. 10(6), pages 944-946, November.
  6. Rauch James E., 1993. "Productivity Gains from Geographic Concentration of Human Capital: Evidence from the Cities," Journal of Urban Economics, Elsevier, vol. 34(3), pages 380-400, November.
  7. Giannetti, M., 2000. "On the Mechanics of Migration Decisions: Skill Complementarities and Endogenous Price Differentials," Papers, Banca Italia - Servizio di Studi 366, Banca Italia - Servizio di Studi.
  8. Enrico Moretti, 2003. "Human Capital Externalities in Cities," NBER Working Papers 9641, National Bureau of Economic Research, Inc.
  9. Mikael Lindahl & Alan B. Krueger, 2001. "Education for Growth: Why and for Whom?," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 39(4), pages 1101-1136, December.
  10. Michael Spagat, 2002. "Human Capital, Growth and Inequality in Transition Economies," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 499, William Davidson Institute at the University of Michigan.
  11. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(1), pages 3-42, July.
  12. Daron Acemoglu & Joshua Angrist, 2001. "How Large are Human-Capital Externalities? Evidence from Compulsory-Schooling Laws," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 2000, Volume 15, pages 9-74 National Bureau of Economic Research, Inc.
  13. Ingo Geishecker & John P. Haisken-DeNew, 2002. "Riding the Transition Roller-Coaster: Flexibility and the Inter-Industry Wage Structure in Russia," Discussion Papers of DIW Berlin 280, DIW Berlin, German Institute for Economic Research.
  14. Psacharopoulos, George & Patrinos, Harry Anthony, 2002. "Returns to investment in education : a further update," Policy Research Working Paper Series 2881, The World Bank.
  15. Ira N. Gang & Robert C. Stuart, 1999. "Mobility where mobility is illegal: Internal migration and city growth in the Soviet Union," Journal of Population Economics, Springer, Springer, vol. 12(1), pages 117-134.
  16. Acemoglu, Daron, 1996. "A Microfoundation for Social Increasing Returns in Human Capital Accumulation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(3), pages 779-804, August.
  17. João Carlos Cerejeira da Silva, 2003. "Local Human Capital Externalities or Sorting? Evidence From a Displaced Workers Sample," NIPE Working Papers, NIPE - Universidade do Minho 9/2003, NIPE - Universidade do Minho.
  18. Barbara Sianesi, 2002. "The returns to education: a review of the empirical macro-economic literature," IFS Working Papers, Institute for Fiscal Studies W02/05, Institute for Fiscal Studies.
  19. Moretti, Enrico, 2004. "Estimating the social return to higher education: evidence from longitudinal and repeated cross-sectional data," Journal of Econometrics, Elsevier, Elsevier, vol. 121(1-2), pages 175-212.
  20. Card, David, 1999. "The causal effect of education on earnings," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 30, pages 1801-1863 Elsevier.
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Citations

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Cited by:
  1. Aleksey Oshchepkov, 2007. "Are Interregional Wage Differentials in Russia Compensative?," Discussion Papers of DIW Berlin 750, DIW Berlin, German Institute for Economic Research.
  2. Daniel Heuermann & Benedikt Halfdanarson & Jens Suedekum, 2010. "Human Capital Externalities and the Urban Wage Premium: Two Literatures and their Interrelations," Urban Studies, Urban Studies Journal Limited, Urban Studies Journal Limited, vol. 47(4), pages 749-767, April.
  3. Mueller, Normann, 2007. "(Mis-)Understanding Education Externalities," MPRA Paper 6307, University Library of Munich, Germany.
  4. Mueller, Normann, 2007. "(Mis-)Understanding Education Externalities," MPRA Paper 5331, University Library of Munich, Germany, revised Mar 2007.

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