EDUCATION AND TECHNOLOGY ADOPTION IN A SMALL OPEN ECONOMY: THEORY AND EVIDENCE
We develop a simple open-economy growth model in which productivity growth and education influence each other, and use it to empirically address issues of causality between them. Technology adoption fostered by human capital and economic openness determines productivity growth; the framework allows us to evaluate whether the effects of these two variables on growth documented in previous cross-country regression studies carry over to a simultaneous system closely allied to a model. This model implies that an increase in openness will stimulate technical change but, for empirically plausible values of the intertemporal elasticity of substitution, it will cause a decrease in the level of education. The empirical analysis specifies productivity growth and human capital as endogenous variables and finds evidence broadly consistent with the theory—openness and education stimulate productivity growth, and there is a negative effect of this growth on human capital accumulation.
Key Words: Human Capital Accumulation; Productivity Growth; Simultaneous Equation Regressions.
c1 This is a substantially modified version of the material in Chapter 2 of my University of Chicago Ph.D. dissertation. An earlier version of this paper circulated under the title, “Education, Technical Change, and Openness.” I am grateful to two anonymous referees, an associate editor, Ayse Imrohoro[gcaron]lu, Pete Klenow, Robert Lucas, Hans Mikkelsen, Thomas Sargent, Nancy Stokey, and participants at several seminars for comments, and to Andrea Ginder for excellent research assistance. Address correspondence to: Krishna B. Kumar, Marshall School of Business, University of Southern California, 701 Exposition Blvd., #701, Los Angeles, CA 90089-1427, USA; e-mail: email@example.com.