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

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

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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Bibliographic Info

Paper provided by University of Chile, Department of Economics in its series Working Papers with number wp320.

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Length: 46 pages
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:udc:wpaper:wp320

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Web page: http://www.econ.uchile.cl/
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Keywords: Returns to Education; Returns to Experience; Economic Freedom; Inequality; Quantiles.;

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  1. Elizabeth M. King & Claudio E. Montenegro & Peter F. Orazem, 2010. "Economic Freedom, Human Rights, and the Returns to Human Capital: An Evaluation of the Schultz Hypothesis," Working Papers wp320, University of Chile, Department of Economics.
  2. Eric Hanushek & Ludger Woessmann, 2008. "The Role of Cognitive Skills in Economic Development," Discussion Papers 07-034, Stanford Institute for Economic Policy Research.
  3. Fleisher, Belton M. & Sabirianova, Klara & Wang, Xiaojun, 2005. "Returns to skills and the speed of reforms: Evidence from Central and Eastern Europe, China, and Russia," Journal of Comparative Economics, Elsevier, vol. 33(2), pages 351-370, June.
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  17. Branko Milanovic, 2006. "Global Income Inequality: What It Is And Why It Matters?," Working Papers 26, United Nations, Department of Economics and Social Affairs.
  18. Stephen Nickell & Luca Nunziata & Wolfgang Ochel, 2005. "Unemployment in the OECD Since the 1960s. What Do We Know?," Economic Journal, Royal Economic Society, vol. 115(500), pages 1-27, 01.
  19. Orazem, Peter F. & King, Elizabeth M., 2008. "Schooling in Developing Countries: The Roles of Supply, Demand and Government Policy," Handbook of Development Economics, Elsevier.
  20. 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.
  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. Elizabeth M. King & Claudio E. Montenegro & Peter F. Orazem, 2012. "Economic Freedom, Human Rights, and the Returns to Human Capital: An Evaluation of the Schultz Hypothesis," Economic Development and Cultural Change, University of Chicago Press, vol. 61(1), pages 39 - 72.

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