Profitability of Investments in Education: Evidence from Spanish Regions

Abstract

López-Bazo E. and Moreno R. Profitability of investments in education: evidence from Spanish regions, Regional Studies. The objective of this paper is to furnish new evidence concerning the aggregate profitability of the accumulation of educational human capital. In addition to the traditional measure of the return to human capital, combining the information on its shadow price with the social cost of providing education allows one to confirm the profitability of investments in education as a tool for promoting economic growth. The possibility of obtaining estimations of these effects for each Spanish region enables one to evaluate empirically the amount of heterogeneity across regions in the effects of human capital.

López-Bazo E. and Moreno R. 教育投入的收益：来自西班牙的相关证据， 区域研究。 本文旨在为教育人力资本累积的集聚收益这一观点提出新证据。在测量人力资本回报率这一传统方法的基础上，我们通过整合影子价格与社会成本肯定了教育产业投入收益在促进经济增长中所发挥的工具性作用。对西班牙各区域所受影响的预测使我们能够经验性地评估区域间人力资本效应的不均衡总量。

经济发展 教育 生产力 回报率

López-Bazo E. et Moreno R. La rentabilité de l'investissement dans l'éducation: des preuves provenant des régions d'Espagne, Regional Studies. Cet article cherche à fournir de nouvelles preuves sur la rentabilité globale de l'accumulation du capital humain scolaire. En plus de la mesure traditionnelle du rendement du capital humain, combiner l'information sur son prix virtuel et le coût social d'assurer les services scolaires permet de confirmer la rentabilité de l'investissement dans l'éducation comme outil essentiel pour la promotion de la croissance économique. La possibilité d'obtenir des estimations de ces effets pour chacune des régions d'Espagne permet une évaluation empirique de l'importance de l'hétérogénéité à travers les régions quant aux effets du capital humain.

Développement économique Education Productivité Rendement

López-Bazo E. und Moreno R. Rentabilität von Investitionen in Bildung: Belege aus den spanischen Regionen, Regional Studies. Mit diesem Beitrag sollen neue Belege für die kombinierte Rentabilität bei der Akkumulation von humanem Bildungskapital erbracht werden. Zusätzlich zum traditionellen Maßstab des Humankapitalertrags ermöglicht die Kombination der Informationen über den Schattenpreis mit den sozialen Kosten der Bereitstellung von Bildung eine Überprüfung der Rentabilität von Bildungsinvestitionen als Mittel zur Förderung von Wirtschaftswachstum. Die Möglichkeit einer Schätzung dieser Auswirkungen auf die einzelnen spanischen Regionen erlaubt die empirische Bewertung des Ausmaßes der Heterogenität der Auswirkungen von Humankapital in den verschiedenen Regionen.

Wirtschaftsentwicklung Bildung Produktivität Rentabilität

López-Bazo E. y Moreno R. Rentabilidad de las inversiones en educación: evidencia de las regiones españolas, Regional Studies. El objetivo de este artículo es facilitar nuevas evidencias sobre la rentabilidad agregada de la acumulación del capital humano educativo. Además de la medida tradicional del rendimiento sobre el capital humano, la combinación de la información sobre su precio sombra con el coste social de ofrecer educación permite confirmar la rentabilidad de la inversión en educación como una herramienta para fomentar el crecimiento económico. La posibilidad de obtener estimaciones de estos efectos para cada región española permite evaluar empíricamente la cantidad de heterogeneidad en las regiones en cuanto a los efectos del capital humano.

Desarrollo económico Educación Productividad Tasa de rendimiento

Keywords:

• Economic development
• Education
• Productivity
• Rate of return

JEL classifications:

• O180
• O470
• R110

Acknowledgements

The authors acknowledge financial support from the Ministerio de Educación y Ciencia, Programa Nacional de I + D + I (ECO2008-05314) as well as from the project ‘Intangible Assets and Regional Economic Growth (IAREG)’ financed by the European Union under the 7th Framework Programme (FP7-SSH-2007-1.216813). The views expressed are purely those of the authors and may not in any circumstances be regarded as stating an official position of the European Commission.

Notes

Throughout this paper, the terms ‘human capital’ and ‘education’ are used indiscriminately since it is the human capital acquired in the formal educational system that is being referred to specifically.

The use of the dual approach has been much more frequent in analysing the effects of investments in infrastructure and public capital (for example, Nadiri and Mamuneas, 1994; Morrison and Schwartz, 1996; Moreno et al., 2002).

The macroeconomic evidence on the impact of educational human capital presented to date has been based on the analysis of the aggregate return to human capital obtained through the application of a range of specifications centred on a primal approach - in other words, basing the analysis within a production function framework (see the survey by Krueger and Lindahl, 2001). As stated above, an alternative and complementary approach to analyse the effect of human capital at the aggregate level – and one that is virtually unexplored – is the one based on the duality theory.

This corresponds to a partial static equilibrium model where physical capital cannot be instantaneously adjusted to the optimum stock in every time period. A full static equilibrium can also be defined in which that type of capital is assumed to be always in equilibrium (for further details, see, for instance, Brown and Christensen, 1981). The present authors' preference for the partial static equilibrium model lies in the result of the formal test proposed by Schankerman and Nadiri (1986) to the data used in the empirical section of this paper. Detailed results are available from the authors upon request.

NUTS is the French acronym for Nomenclature of Territorial Units for Statistics, a hierarchical classification established by Eurostat to provide comparable regional breakdowns of European Union member states. In the case of Spain, the NUTS-2 regions correspond to the seventeen Autonomous Communities, historical and administrative regions with a high level of political and financial autonomy.

Alternatives, such as the rate of schooling or the literacy rate, have been subjected to considerable criticism due to their clear limitations when approximating an economy's human capital stock. They have, however, been used in several studies because of the impossibility of obtaining detailed information about the levels of education of the population.

Comparable regional dummies were considered when estimating an aggregate cost system for the Spanish regions by Boscá et al. (2002).

This paper follows Morrison and Schwartz (1996) in taking this decision.

To identify the impact of the aggregate stock of education in the economy, the paper follows the idea of Morrison and Siegel (1997) that human capital, as an external factor, can cause downward shifts of cost curves, so that their effect on aggregate productivity can be examined through a cost-function approach. It should then be noted that the present approach differs from the one based on estimating human capital externalities from a Mincerian approach (among others, see Rauch, 1993; Acemoglu and Angrist, 2001; Ciccone and Peri, 2006; and Heuermann et al., 2010, for a recent survey). The use of a cost function to analyse the effect of human capital must be understood, therefore, as parallel to the common practice in the economic growth literature of using a production function aggregated with the stock of human capital (for instance, Topel, 1999). Both frameworks take the same idea that a higher endowment of human capital in the economy may imply higher productivity growth. In the duality framework, this result implies that additional investment in human capital results in a downward shift in the aggregate cost function.

The set of effects for each region in each year is available from the authors upon request.

By way of example, estimations of the return on investments in public productive capital in the Spanish economy in a similar period stand at around 3% (for example, 2.8% in Moreno et al., 2003; and 2.6% in Boscá et al., 2002).

A similar trend is observed when the yearly average for each region is plotted against its average level of productivity over the period.

The same temporal profile was recorded in each of the Spanish regions. Results are available from the authors upon request.