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International Capital Market Integration, Educational Choice and Economic Growth

  • Egger, Hartmut

    ()

    (University of Bayreuth)

  • Egger, Peter

    ()

    (ETH Zurich)

  • Falkinger, Josef

    ()

    (University of Zurich)

  • Grossmann, Volker

    ()

    (University of Fribourg)

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 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
Date of revision:
Publication status: published as "The Impact of Capital Market Integration on Educational Choice and the Consequences for Economic Growth" in: World Economy, 2010, 33 (10), 1241-1268
Handle: RePEc:iza:izadps:dp1863
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