We are grateful to an anonymous referee, Jeff Bergstrand, Spiros Bougheas, Manuel Öchslin, Fabrizio Zilibotti and Josef Zweimüller for helpful comments and suggestions. We have also benefited from discussion at the European Trade Study Group Meeting in Dublin, the European Meeting of the Econometric Society in Vienna as well as from discussion at the Economics Research Seminars of the Austrian National Bank, the University of Fribourg, the University of Innsbruck, the University of Nottingham, and the University of Tübingen. We thank Stephanie Bade for excellent research assistance.
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The Impact of Capital Market Integration on Educational Choice and the Consequences for Economic Growth
Article first published online: 6 OCT 2010
DOI: 10.1111/j.1467-9701.2010.01290.x
© 2010 Blackwell Publishing Ltd
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How to Cite
Egger, H., Egger, P., Falkinger, J. and Grossmann, V. (2010), The Impact of Capital Market Integration on Educational Choice and the Consequences for Economic Growth. World Economy, 33: 1241–1268. doi: 10.1111/j.1467-9701.2010.01290.x
Publication History
- Issue published online: 6 OCT 2010
- Article first published online: 6 OCT 2010
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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.