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International Capital Market Integration, Educational Choice and Economic Growth

Hartmut Egger (), Peter Egger (), Josef Falkinger and Volker Grossmann ()

No 1863, IZA Discussion Papers from Institute of Labor Economics (IZA)

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: economic growth; education policy; capital-skill complementarity; educational choice; capital mobility; wage income inequality (search for similar items in EconPapers)
JEL-codes: F20 H52 J24 O10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev, nep-edu, nep-hrm and nep-pbe
Date: 2005-11
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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

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