External returns to higher education in Mexico 2000-2010
| Autor | Mariana Pereira-López - Isidro Soloaga |
| Cargo | Department of Economics, Universidad Iberoamericana - Department of Economics, Universidad Iberoamericana |
| Páginas | 1-34 |
Ensayos Revista de Economía–Volumen XXXIV, No.1, mayo 2015, pp. 1-34
External returns to higher education in Mexico 2000 -2010
Mariana Pereira-López
Isidro Soloaga
Fecha de recepción: 10 IV 2014 Fecha de aceptación: 24 XI 2014
Abstract
This paper estimates the external returns to higher education in Mexico using
cross-
Results indicate that a one percentage point increase in the share of college
graduates in Mexico increases the regression-adjusted average wages of a
metropolitan area in more than six percent over a 10-year period. Analyzing
whether these effects are mainly due to externalities or to supply movements
along a downward sloping demand, it finds that part of the external returns to
education is the result of externalities from direct or indirect interaction with
these individuals.
JEL Classification: J0; R0; O0; O4.
Keywords: human capital, knowledge spillovers, education, wages, social
returns to education.
Department of Economics, Universidad Iberoamericana. Address: Prolongación Paseo de
la Reforma 880, Lomas de Santa Fe, Ciudad de México, D.F. C.P. 01219. Office: (55)
5950-4000 ext. 4973. E-mail: mariana.pereira@uia.mx.
Department of Economics, Universidad Iberoamericana. Address: Prolongación Paseo de
la Reforma 880, Lomas de Santa Fe, Ciudad de México, D.F. C.P. 01219. Office: (55)
5950-4303. E-mail: isidro.soloaga@ibero.mx.
ACKNOWLEDGEMENTS: We thank Raymundo Campos-Vázquez, Gerardo Esquivel,
Laura Juárez, and Carlos Chiapa for their valuable comments and suggestions as well as
Carolina Palacios for her support with bibliographic materials for this paper. We also thank
all the participants in the seminars at El Colegio de México and t he 1st Conference of the
Economic Development Network, Instituto Politécnico Nacional, as well as the reviewers
for their really valuable suggestions. All errors are naturally our own.
Ensayos Revista de Economía
2
Resumen
Este artículo estima los retornos externos a la educación en México
utilizando dato s de la muestra de los Censos de Población de 2000 y 2010.
Los resultados indican que el incremento de un punto porcentual de la
participación de egresados universitarios en México, se traduce en un
aumento de más de sei s por ciento sobre los salar ios promedio de las zonas
metropolitanas, en un periodo de diez años. Analizando si estos efectos se
deben a externalidades o a movimientos sobre la curva de demanda, se
encuentra que parte de esos retornos, se deben a la interacción directa o
indirecta de tales individuos.
Clasificación JEL: J0; R0; O0; O4.
Palabras Clave: capital humano, externalidades del conocimiento,
educación, salarios, retornos sociales a la educación.
Introduction
Even though there is consensus regarding the magnitude o f private returns to
education (approximately 7% to 11% per extra year of schooling for the
United States)
1
, there is still no agreement on the existence, let alone the
magnitude of social returns to higher education and the channels through
which the y operate (Moretti, 2004a). This paper analyzes the social returns
for a developing country such as Mexico
2
, to the best of our knowledge for
the first time, and finds that they are significant.
Social returns to education may arise either from d irect interaction with more
educated peo ple, as we learn from working and talking to other individuals
or, as will be explained later, indirectly through the effects that the pr esence
of more educated people has on prices.
1
the United States focused on the
identification problems (unobserved ability) in the classical Mincerian regressions (Mincer,
1958, 1974). One of the most influential papers on this topic is Angrist and Krueger (1991)
who use the quarter of birth as an instrumental variable (IV) for education; they argue that
the effect of the IV on education is related to compulsory schooling laws. In general, the IV
approach for private returns leads to higher returns than the OLS approach. See Card
(1999) for a survey of the studies that use institutional factors as instruments to solve the
endogeneity problem of education.
2
In the case of Mexico, previous studies have found private returns to schooling in the
range of 8-15%. See Morales-Ramos (2011) for a summary of the different results for
Mexico.
External returns to higher education in Mexico 2000-2010
3
The assumption of social returns to higher education and the externalities
generated from direct or indirect interaction with more educated individuals
is crucial for econo mic growth theory and education policy. Growth theorists
like Lucas (1988) argue that, depending on their magnitude, human capital
externalities ca n be consider ed a deter minant of development. Furthermore,
many economists such as Mankiw, Romer and Weil (1 992) and Benabou
(1996) consider that cross-country income and productivity disparities are the
result of differences in the distribution of human capital. According to Goldin
and Katz (2008) and Acemoglu and Autor (2012), investments in human
capital can play an equalizing role in the context of skill-biased technological
change. If tec hnology is skilled biased, when technological change occurs
(demand shifts), it benefits skilled workers increasing inequality between
skilled and unskilled individuals. However, if the change is accompanied by
steady increases in human capital (supply shifts), inequality can be reduced.
education and technology.
Figure 1
Public investment in tertiary education per pupil as a percentage of
GDP per capita 2009
Note: according to World Bank (2009) tertiary education refers to post-secondary including
the education provided by a diversity of institutions that provide higher-order capacity such
as Universities, technical institutes, community colleges, nursing schools, research
laboratories, distance centers, among others.
Source: World Bank, 2009.
As Figure 1 shows, public investment per pupil in tertiary education in
Mexico represents more than 40% of GDP per capita, a figure comparable
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