The Causal Effect of Education on Aggregate Income

Marcelo Soto

No 605, Working Papers from International Economics Institute, University of Valencia

Abstract: Empirical studies find that changes in schooling are not correlated with changes in per capita income. Similarly, the estimation in levels also produces minor coefficients for years of schooling. Low social returns and measurement error in educational variables have been invoked as possible explanations for such findings. This paper shows that collinearity between physical and human capital stocks seriously undermines the ability of educational indicators to display significance in panel data estimates. On top of that, failure to cope with endogeneity has produced biased estimates. As opposed to the earlier empirical literature, the social return on schooling is positive and significant, but no Lucas-type externalities are observed. Finally, the quality of education emerges as a significant determinant of heterogeneity in social returns across countries.

Keywords: human capital; education; income growth; GMM estimation. (search for similar items in EconPapers)
JEL-codes: J10 O10 O40 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2006-09
New Economics Papers: this item is included in nep-dev, nep-edu and nep-hrm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: The causal effect of education on aggregate income (2015)
Working Paper: The causal effect of education on aggregate income (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:iei:wpaper:0605

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