Economic geography and human capital accumulation in Turkey: evidence from micro-data

ABSTRACT

This study examines the impact of market access on human capital accumulation in Turkey. Using individual-level data, the analysis explores the background of human capital accumulation, combining market accessibility, wages and human capital development. Upon the treatment of wages as an endogenous covariate of interest and overtime work as an exogenous source of variation, we find evidence that the impact of market access on human capital development vanishes in ways not predicted by the augmented New Economic Geography set-up for human capital accumulation. Findings confirm that economic policies may be effective in reducing regional variation in human capital endowments.

KEYWORDS:

• human capital
• market access
• Turkey
• wages

JEL:

• R11
• R12

ACKNOWLEDGEMENTS

An earlier version of this paper was presented at the joint workshop of the Economic Research Forum (ERF) and the World Bank in Luxor, Egypt. The authors thank Nona Karalashvili and Associate Editor Michael Fritsch for useful comments and suggestions.

DISCLOSURE STATEMENT

No potential conflict of interest was reported by the authors.

Notes

1. Since our central focus is on the human capital accumulation and supply side of the model, we skip the presentation of the agriculture sector. For the full solutions and the overall equilibrium, see Redding and Schott (2003, section 2).

2. The ESS is administered at the regional level only for 2014. There are alternative sources for individual wage data in Turkey; however, they fail to provide the required individual information for our identification strategy. Therefore, we only estimate our model for 2014. Prior evidence confirms the historical persistence of educational human capital disparities and market accessibility (Erdem, 2016; Karahasan et al., 2016). Therefore, we have enough reasons to believe that our results can be generalized for the Turkish case, shaped by persistent regional disparities.

3. See Section A.1 in Appendix A in the supplemental data online for descriptive statistics.

4. We estimate two variants of the education equation. The first (column (1.2) of Table 2) is an augmented version of Redding and Schott (2003) and uses wages and market access. The second (column (2) of Table 2) is the direct estimation of the Redding and Schott set-up that uses market access only to explain educational human capital distribution.

5. Another threat to identification is the possible endogeneity of MA (Boulhol & De Serres, 2010). As our central concern is the identification of wage, human capital accumulation and market access triangle, we waived further investigation of endogeneity of MA. However, the results that account for the endogeneity of MA by following the routine approach offered by Boulhol and De Serres (2010) are available from the authors upon request.

6. A suggested measure to assess the explanatory power of the excluded instruments is the first-stage F-statistic > 10 (Bound et al., 1995; Staiger & Stock, 1997). A recent study shows that if an F > 10 threshold is used, the required critical value for a t-test at the 5% significance level to have a correct size/coverage is 3.43 instead of the usual 1.96 (Lee et al., 2020). Given the critical value of 3.43, the confidence interval for the coefficient on the natural log of monthly wage in the second stage of Table 1 becomes [0.011:1.747].

7. We did not take the natural logarithm of overtime payments and hours because 80% of the sample have an overtime value of zero.

8. We compute the average marginal effect (AME) for wages at a regional level to assess the possible geographical variability of its impact on human capital accumulation. The results show sizable geographical variability, reminding one of the importance of returns to education for policy construct to combat regional disparities. See Section A.2 in Appendix A in the supplemental data online for details.

9. We thank an anonymous reviewer for raising this issue.

10. We thank an anonymous reviewer for raising this issue.

Additional information

Funding

This work was supported by the Economic Research Forum (ERF) [grant number 2017-157] on the theme of Structural Change, Resource Misallocation and Growth Dynamics in the MENA Region. The content and recommendations of this research do not necessarily reflect the views of the ERF.