Identifying the external effects of human capital: a two-stage approach

Abstract

In this study microdata from the Guatemala household Survey are analysed using a testable model of endogenous growth in order to detect any external effects of education. In the first stage of the analysis, a wage equation is estimated and the internal effects of education are filtered out. In the second stage, the resulting industry wage premiums are regressed on average human capital as well as industry-specific characteristics to account for external effects. While stronger conclusions cannot be drawn, the hypothesis that external effects may be present cannot be rejected.