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The Causal Effect of Education on Aggregate Income

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  • Marcelo Soto

    ()
    (Instituto de Análisis Económico, Barcelona)

Abstract

Empirical studies find that changes in schooling are not correlated with changes in per capita income. Similarly, the estimation in levels also produces minor coefficients for years of schooling. Low social returns and measurement error in educational variables have been invoked as possible explanations for such findings. This paper shows that collinearity between physical and human capital stocks seriously undermines the ability of educational indicators to display significance in panel data estimates. On top of that, failure to cope with endogeneity has produced biased estimates. As opposed to the earlier empirical literature, the social return on schooling is positive and significant, but no Lucas-type externalities are observed. Finally, the quality of education emerges as a significant determinant of heterogeneity in social returns across countries.

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File URL: http://iei.uv.es/docs/wp_internos/RePEc/pdf/iei_0605.pdf
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Bibliographic Info

Paper provided by International Economics Institute, University of Valencia in its series Working Papers with number 0605.

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Length: 46 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:iei:wpaper:0605

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Keywords: human capital; education; income growth; GMM estimation.;

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Cited by:
  1. Fabrice Murtin & Martina Viarengo, 2011. "The Expansion and Convergence of Compulsory Schooling in Western Europe, 1950–2000," Economica, London School of Economics and Political Science, vol. 78(311), pages 501-522, 07.
  2. Fabrice Murtin & Martina Viarengo, 2008. "The Convergence of Compulsory Schooling in Western Europe: 1950-2000," CEE Discussion Papers 0095, Centre for the Economics of Education, LSE.

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