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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. 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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  15. Xu, Bin, 2000. "Multinational enterprises, technology diffusion, and host country productivity growth," Journal of Development Economics, Elsevier, vol. 62(2), pages 477-493, August.
  16. Francesco Caselli, 2007. "The Marginal Product of Capital," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 122(2), pages 535-568, 05.
  17. James Heckman & Carmen Pages, 2003. "Law and Employment: Lessons from Latin America and the Caribbean," NBER Working Papers 10129, National Bureau of Economic Research, Inc.
  18. John McMillan & Christopher Woodruff, 2002. "The Central Role of Entrepreneurs in Transition Economies," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 153-170, Summer.
  19. Schultz, Theodore W, 1975. "The Value of the Ability to Deal with Disequilibria," Journal of Economic Literature, American Economic Association, vol. 13(3), pages 827-46, September.
  20. Durlauf, Steven N. & Johnson, Paul A. & Temple, Jonathan R.W., 2005. "Growth Econometrics," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 8, pages 555-677 Elsevier.
  21. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2008. "Trends in U.S. Wage Inequality: Revising the Revisionists," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 300-323, May.
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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.
  2. Montenegro, Claudio E. & Patrinos, Harry Anthony, 2014. "Comparable estimates of returns to schooling around the world," Policy Research Working Paper Series 7020, The World Bank.

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