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Cross-border Economic Activities, Human Capital and Efficiency: A Stochastic Frontier Analysis for OECD Countries


  • We would like to thank participants at the autumn 2009 Midwest International Economics Meetings at Pennsylvania State University, the 2009 Northeast Ohio Workshop at the Federal Reserve Bank of Cleveland, the 2010 Annual Meeting of the Swiss Society of Economics and Statistics (SSES) and an anonymous referee for their insightful comments and suggestions. All remaining errors are, of course, our own.


We study the growth effects of outward-ori,ented econ,o,mies by using sto,chas,tic fron,tier anal,y,sis to mea,sure the effi,ciency exter,nal,i,ties of three forms of eco,n,omic cross-bor,der activ,i,ties – inter,na,tional trade, for,eign direct invest,ment (FDI) and migra,tion – for OECD coun,tries. The study also exam,ines whether the effi,ciency of these cross-bor,der activ,i,ties is affected by the level of human cap,i,tal in the host coun,try. We find that inter,na,tional trade and FDI are impor,tant chan,nels for improv,ing effi,ciency, as is human cap,i,tal accu,mu,la,tion, and that the positive effects of inter,na,tional trade, FDI, and migra,tion depend cru,cially on the level of accu,mu,lated human cap,i,tal. Our results show that the impact of human cap,i,tal is impor,tant for increas,ing effi,ciency via inter,na,tional trade flows and FDI flows, while immi,gra,tion into coun,tries that are richer in human cap,i,tal enhances their effi,ciency rel,a,tively more than immi,gra,tion into coun,tries with lower human cap,i,tal. These results remain robust to alter,nate mea,sures of human cap,i,tal, con,trols on edu,ca,tion lev,els among immi,grants, and to a non-para,met,ric esti,ma,tion of the model.