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International Capital Market Integration, Educational Choice and Economic Growth

  • Hartmut Egger
  • Peter Egger
  • Josef Falkinger
  • Volker Grossmann

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 non-compulsory 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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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1630.

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Date of creation: 2005
Date of revision:
Handle: RePEc:ces:ceswps:_1630
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