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The Impact of Capital Market Integration on Educational Choice and the Consequences for Economic Growth

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

Abstract

This paper examines the impact of capital market integration on higher education and the link to economic growth. The analysis takes into account that participation in higher education is non‐compulsory and depends on individual choice. Due to capital–skill complementarity, integration increases (reduces) the incentives to participate in higher education in capital‐importing (‐exporting) economies, all other things equal. From a national policy point of view, public education expenditure should increase after integration of similar economies in order to attract mobile capital. Using foreign direct investment as a measure of capital flows, we present empirical evidence which largely confirms our main hypothesis: an increase in net capital inflows in response to capital market integration raises participation in higher education. In addition, we show that the adjustment in educational attainment is an empirically relevant channel through which capital inflows foster economic growth.

Suggested Citation

  • Hartmut Egger & Peter Egger & Josef Falkinger & Volker Grossmann, 2010. "The Impact of Capital Market Integration on Educational Choice and the Consequences for Economic Growth," The World Economy, Wiley Blackwell, vol. 33(10), pages 1241-1268, October.
    • Handle: RePEc:bla:worlde:v:33:y:2010:i:10:p:1241-1268
    DOI: 10.1111/j.1467-9701.2010.01290.x
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    Cited by:

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    3. Volker Grossmann & David Stadelmann, 2012. "Does High-skilled Migration Affect Publicly Financed Investments?," Review of International Economics, Wiley Blackwell, vol. 20(5), pages 944-959, November.
    4. J. Eduardo Ibarra-Olivo & Thomas Neise & Moritz Breul & Jöran Wrana, 2024. "FDI and human capital development: a tale of two Southeast Asian economies," Journal of International Business Policy, Palgrave Macmillan, vol. 7(3), pages 314-336, September.
    5. Hong Zhuang, 2017. "The effect of foreign direct investment on human capital development in East Asia," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 22(2), pages 195-211, April.
    6. Xin Wang, 2022. "Multinational firms and human capital investment: A dynamic knowledge‐capital model," The World Economy, Wiley Blackwell, vol. 45(5), pages 1564-1586, May.
    7. Miao Wang & Hong Zhuang, 2021. "FDI and educational outcomes in developing countries," Empirical Economics, Springer, vol. 61(6), pages 3505-3539, December.

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