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Economic Freedom, Human Rights, and the Returns to Human Capital: An Evaluation of the Schultz Hypothesis

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  • King, Elizabeth M.
  • Montenegro, Claudio E.
  • Orazem, Peter

Abstract

T.W. Schultz (1975) proposed that returns to human capital were highest in economic environments where technology, price or production shocks were common and managerial skills to adapt resource allocations to those shocks were most in need.� We hypothesize that variation in returns to human capital across developing countries can be explained in part by government institutions that blunt the magnitude of those shocks or that limit individual abilities to respond to those shocks.� Using estimated returns to schooling and experience from 122 household surveys from 86 developing countries, we demonstrate a strong positive correlation between economic freedom and returns to human capital. The positive effect is observed at all quantiles of the wage distribution.� Economic freedom benefits the most skilled who get higher returns to schooling; but it also benefits the least skilled who get higher returns from experience.

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File URL: http://www.econ.iastate.edu/sites/default/files/publications/papers/p11641-2010-06-22.pdf
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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 31641.

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Date of creation: 21 Jun 2010
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Publication status: Published in Economic Development and Cultural Change, October 2012, vol. 61 no. 1, pp. 39-72
Handle: RePEc:isu:genres:31641

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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Keywords: Returns to education; Returns to experience; Economic freedom; inequality; quantiles;

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  1. Economic Freedom and Returns to Human Capital
    by UDADISI in UDADISI on 2012-09-11 12:52:00
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Cited by:
  1. King, Elizabeth M. & Montenegro, Claudio E. & Orazem, Peter, 2010. "Economic Freedom, Human Rights, and the Returns to Human Capital: An Evaluation of the Schultz Hypothesis," Staff General Research Papers 31641, Iowa State University, Department of Economics.

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