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Is the U.S. Private Education Sector Infected by Baumol’s Cost Disease? Evidence from the 50 States

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  • Bates, Laurie
  • Santerre, Rexford

Abstract

High and rising costs characterize the private education industry in the United States. This paper tests if Baumol’s cost disease of the service sector can explain some of the growth of private education spending. An empirical strategy developed by Hartwig (2008) and Colombier (2010) and a panel data set of all U.S. states over the period from 1980 to 2009 are used in the empirical analysis. The empirical results indicate that Baumol’s cost disease does infect the private education industry in the United States. The results are reasonably robust with respect to state- and time-fixed effects, two-stage least squares estimation, individual state time trends, and a variety of potentially important covariates.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 52300.

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Date of creation: 16 Dec 2013
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Handle: RePEc:pra:mprapa:52300

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Keywords: Private education spending; Baumol's cost disease; aggregate productivity;

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  1. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
  2. Hartwig, Jochen, 2008. "What drives health care expenditure?--Baumol's model of 'unbalanced growth' revisited," Journal of Health Economics, Elsevier, vol. 27(3), pages 603-623, May.
  3. Morris A. Davis & Jonathan Heathcote, 2004. "The price and quantity of residential land in the United States," Finance and Economics Discussion Series 2004-37, Board of Governors of the Federal Reserve System (U.S.).
  4. Barry T. Hirsch & David A. Macpherson, 2003. "Union Membership and Coverage Database from the Current Population Survey: Note," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 56(2), pages 349-354, January.
  5. Jochen Hartwig, 2011. "Can Baumol's model of unbalanced growth contribute to explaining the secular rise in health care expenditure? An alternative test," Applied Economics, Taylor & Francis Journals, vol. 43(2), pages 173-184.
  6. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
  7. Jack E. Triplett & Barry P. Bosworth, 2003. "Productivity measurement issues in services industries: "Baumol's disease" has been cured," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 23-33.
  8. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
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