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Human Capital Externalities: Evidence from the Transition Economy of Russia

  • Alexander Muravyev

The paper tests for the existence of human capital externalities, more precisely those stemming from higher education, using a micro-level approach: the Mincerian wage regression augmented with the average level of education in a local geographical area (city). To solve identification problems arising due to endogeneity of average education the study exploits a natural experiment provided by the process of economic transition in the former communist economies. We argue that the educational structure of cities under the central planning was determined by the government rather than the market; thus the average educational attainment in cities at the end of communism can be regarded as exogenous with respect to the wages prevailing after the start of transition. The identification strategy based on the use of the pre-transition average education is applied to data from the Russia Longitudinal Monitoring Survey, RLMS. Empirical results are consistent with the presence of significant human capital (educational) externalities in the Russian economy. According to the estimates, one percent increase in the college share in a city results in the increase of city residents' wages by about 1.5 percent. The result proves to be robust to several changes in the empirical specification.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.44761.de/dp629.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 629.

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Length: 35 p.
Date of creation: 2006
Date of revision:
Handle: RePEc:diw:diwwpp:dp629
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  13. João Carlos Cerejeira da Silva, 2003. "Local Human Capital Externalities or Sorting? Evidence From a Displaced Workers Sample," NIPE Working Papers 9/2003, NIPE - Universidade do Minho.
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  16. Rauch James E., 1993. "Productivity Gains from Geographic Concentration of Human Capital: Evidence from the Cities," Journal of Urban Economics, Elsevier, vol. 34(3), pages 380-400, November.
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