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

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 noncompulsory 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. The impact of capital market integration on educational choice and the consequences for economic growth 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. 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 whi...

Does High‐skilled Migration Affect Publicly Financed Investments?

“…This result is consistent with empirical evidence in the case of public education spending (e.g. Egger et al, 2010, 2012). Throughout we maintain the assumption Empirical estimates show that the elasticity of substitution between high and low‐skilled labor, σ , is between 1.5 and 2 (e.g.…”

“…This result is consistent with empirical evidence in the case of public education spending (e.g. Egger et al, 2010Egger et al, , 2012. Throughout we maintain the assumption…”

Optimal Educational Policies and Comparative Advantage

“…For intermediate values of budget size, as the latter changes the proportions of the three types of agents adjusts so that the above ratio stays constant. By substituting (9) in (8) and differentiating with respect to b we find that θ m is increasing as the budget increases. When the budget is sufficiently low we have θ A m = 0.…”

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“…7 In a recent paper, Egger, Egger, Falkinger and Grossmann (2005) follow a similar procedure to consider how individual educational choice is affected by the integration of capital markets. 8 Our focus is on long-term trends and thus we have ignored any short-term adjustment costs. For some potential pitfalls of our approach, see Matusz (2002, 2004).…”