Three Essays on The Formation and Mobility of Human Capital in Developing Countries

Abstract

Development and economic growth take place through the more efficient allocation of inputs into more productive uses. Human capital is a key input since it is the main asset of the majority of the population, especially of the poor, in developing countries. What factors attribute to existing barriers to physical and social mobility of human capital in developing countries? How has expanded global trade affected the allocation and accumulation of skill in developing economies? In three chapters, I study the education and internal migration in China and India, and provide answer to these questions.

The first chapter investigates how the state borders within India inhibit internal mobility. Internal mobility is a critical component of economic growth and development as it enables the reallocation of labor to more productive opportunities across sectors and regions. Using detailed district-to-district migration data from the 2001 Census of India, this chapter highlights the role of the state borders as significant impediments to internal mobility. The results show that average migration between neighboring districts in the same state is at least 50 percent larger than neighboring districts on different sides of a state border even after accounting for linguistic differences. While the impact of state borders differs by education, age and reason for migration, it is always large and significant. We suggest that inter-state mobility is inhibited by the existence of state level entitlement schemes, ranging from access to subsidized goods through the public distribution system to the bias for states' own residents in access to tertiary education and public sector employment.

The second chapter studies on the changes in internal migration flows triggered by China's 2001 entry into the World Trade Organization (WTO). It adopts a difference-in-difference empirical specification based on variation across Chinese prefectures before and after 2001. Changes in internal migration rates are linked to the reduction in trade policy uncertainty faced by Chinese exporters to the U.S., as measured by the normal-trade-relations (NTR) gap (Handley and Limao 2013; Pierce and Schott 2016). Robust empirical results show that Chinese prefectures facing a larger decline in their average NTR-gap experience a greater increase in internal migration. The results also show that the impact on skilled and unskilled internal migration rates is consistent with the average skill intensity of export industries of a prefecture.

The third chapter focuses on human capital accumulation in the context of globalization. I investigate how changes in trade policy, both by China and its trading partners, affect rates of high school completion in Chinese prefectures between 1990 and 2005. I separate the effects of trade policy changes into: (1) reductions in tariffs and trade policy uncertainty abroad; and (2) reductions in Chinese tariffs on intermediate, final, and capital goods. Exploiting spatial variation across 324 Chinese prefectures and temporal variation across 15 age cohorts, I employ a difference-in-difference empirical specification and verify the results with semi-parametric methods. Robust empirical findings suggest that increases in high school completion were more pronounced in prefectures with larger reductions in Chinese tariffs on unskilled-labor-intensive inputs, Chinese tariffs on foreign capital goods, and tariffs abroad on skilled-labor-intensive goods. At the same time, increases in high school completion were attenuated in prefectures facing larger reductions in trade policy uncertainty abroad regarding unskilled-labor-intensive goods. Overall, about half of the total increase in high school completion from 1990 to 2005 can be explained by the net effect of these trade policy changes. I do not find trade policy changes were associated with increased college completion -- possibly due to the fixed capacity of Chinese universities during that time period. Lastly, I provide evidence for three channels through which changes in trade policy affected educational attainment: return to education, opportunity cost of schooling, and supply of education resources.