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International Capital Market Integration, Educational Choice and Economic Growth

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Author Info
Hartmut Egger () (University of Zurich, CESifo and GEP Nottingham)
Peter Egger () (Ifo Institute, University of Munich, CESifo and GEP Nottingham)
Josef Falkinger () (University of Zurich, CESifo and IZA Bonn)
Volker Grossmann () (University of Fribourg, CESifo and IZA Bonn)

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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 noncompulsory 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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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1863.

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Length: 46 pages
Date of creation: Nov 2005
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Handle: RePEc:iza:izadps:dp1863

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

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Find related papers by JEL classification:
F20 - International Economics - - International Factor Movements and International Business - - - General
H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  2. Claudia Goldin & Lawrence F. Katz, 1998. "The Origins Of Technology-Skill Complementarity," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 693-732, August. [Downloadable!] (restricted)
    Other versions:
  3. Per Krusell & Lee E. Ohanian & Jose-Victor Rios-Rull & Giovanni L. Violante, 1997. "Capital-skill complementarity and inequality: a macroeconomic analysis," Staff Report 239, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  4. Viaene, Jean-Marie & Zilcha, Itzhak, 2002. "Capital markets integration, growth and income distribution," European Economic Review, Elsevier, vol. 46(2), pages 301-327, February. [Downloadable!] (restricted)
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  6. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March. [Downloadable!] (restricted)
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  7. Edward L. Glaeser & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "Do Institutions Cause Growth?," Journal of Economic Growth, Springer, vol. 9(3), pages 271-303, 09. [Downloadable!]
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  8. Gradstein, Mark & Justman, Moshe, 1995. "Competitive investment in higher education: The need for policy coordination," Economics Letters, Elsevier, vol. 47(3-4), pages 393-400, March. [Downloadable!] (restricted)
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  12. Mark Gradstein & Moshe Justman & Volker Meier, 2004. "The Political Economy of Education: Implications for Growth and Inequality," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262072564.
  13. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment: Updates and Implications," CID Working Papers 42, Center for International Development at Harvard University. [Downloadable!]
    Other versions:
  14. Robert J. Barro & Paul Romer, 1993. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr93-1.
    Other versions:
    • Robert J. Barro & Paul M. Romer, 1991. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr91-1.
  15. Oded Galor & Omer Moav, 1998. "Ability Biased Technological Transition, Wage Inequality, and Economic Growth," Working Papers 98-14, Brown University, Department of Economics.
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  16. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May. [Downloadable!] (restricted)
  17. Hojo, Masakazu, 2003. "An indirect effect of education on growth," Economics Letters, Elsevier, vol. 80(1), pages 31-34, July. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Spiros Bougheas & Richard Kneller & Raymond Riezman, . "Optimal Educational Policies and Comparative Advantage," Discussion Papers 09/02, University of Nottingham, GEP. [Downloadable!]
    Other versions:
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