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Human Capital Investment under Exit Options: Evidence from a Natural Quasi-Experiment

Satish Chand () and Michael Clemens
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Satish Chand: University of New South Wales

No 12173, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Theory suggests that groups historically subject to discrimination, such as Jews, could exhibit traditionally high investment in education because discrimination spurred exit facilitated by human capital. Theory moreover suggests that if exit is uncertain, it could induce investment in skill that more-than-offsets the mechanical reduction in skill stocks at the origin. Tests of such theories are difficult and few. We examine a unique natural quasiexperiment in the Republic of Fiji, in which a sharp increase in discrimination induced mass exit by one ethnic group and mass skill investment by the same group. We show that the induced investment more than offset the loss from exit, producing a net increase in skill stocks. We argue with theory and a range of nonexperimental falsification tests that exit by skilled workers was a necessary causal mechanism of the offsetting skill investment.

Keywords: brain drain; migration; immigration; emigration; skill; student; tertiary; postsecondary; college; university; training; human capital; education; Jewish; Asian; ethnic; discrimination; schooling; selection; commonwealth; Australia; New Zealand; Canada; Pacific; brain gain; natural experiment; Fiji (search for similar items in EconPapers)
JEL-codes: F22 J24 O15 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2019-02
New Economics Papers: this item is included in nep-lma and nep-mig
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