International Capital Market Integration, Educational Choice and Economic Growth
46 Pages Posted: 5 Dec 2005 Last revised: 16 Apr 2023
Abstract
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.
Keywords: capital mobility, educational choice, capital-skill complementarity, education policy, economic growth, wage income inequality
JEL Classification: F20, H52, J24, O10
Suggested Citation: Suggested Citation
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