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The causal effect of education on earnings
TL;DR: This paper surveys the recent literature on the causal relationship between education and earnings and concludes that the average (or average marginal) return to education is not much below the estimate that emerges from a standard human capital earnings function fit by OLS.
Abstract: This paper surveys the recent literature on the causal relationship between education and earnings. I focus on four areas of work: theoretical and econometric advances in modelling the causal effect of education in the presence of heterogeneous returns to schooling; recent studies that use institutional aspects of the education system to form instrumental variables estimates of the return to schooling; recent studies of the earnings and schooling of twins; and recent attempts to explicitly model sources of heterogeneity in the returns to education. Consistent with earlier surveys of the literature, I conclude that the average (or average marginal) return to education is not much below the estimate that emerges from a standard human capital earnings function fit by OLS. Evidence from the latest studies of identical twins suggests a small upward "ability" bias -- on the order of 10%. A consistent finding among studies using instrumental variables based on institutional changes in the education system is that the estimated returns to schooling are 20-40% above the corresponding OLS estimates. Part of the explanation for this finding may be that marginal returns to schooling for certain subgroups -- particularly relatively disadvantaged groups with low education outcomes -- are higher than the average marginal returns to education in the population as a whole.
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TL;DR: This paper showed that more trust leads to more trade so that part of the missing trade can be attributed to the lack of trust between trading partners, e.g. because of cultural differences and habits, or because of insufficient information on product quality and reliability.
Abstract: Transaction costs are a major reason why internatio nal trade flows are much smaller than traditional trade theory would suggest. Trust between trading partners lowers transaction costs and may therefore enhance trade. The empirical analysis of this paper shows that more trust leads to more trade so that part of the “mystery of missing trade” can be attributed to the lack of trust betwe en trading partners, e.g. because of cultural differences and habits, or because of insu fficient information on product quality and reliability. Our gravity equation estim ates for 25 countries show that measures of both formal and of informal trust contr ibute to the explanation of bilateral trade flows.
51 citations
TL;DR: In this paper, the authors explored the role of export costs in the process of poverty reduction in rural Africa and found that the marketing costs that emerge when the commercialization of export crops requires intermediaries can lead to lower participation into export cropping and thus to higher poverty.
51 citations
51 citations
TL;DR: In this article, the authors present the economic modelling using Fiji's Household Income and Expenditure Survey 2002/03 dataset to examine the economic and social factors crucial for poverty reduction, and they find that education has a positive and significant influence on the tendency of the people to engage in health prevention activities and in acquiring good housing facilities.
51 citations
TL;DR: The impact of educational attainment on the duration of welfare spells is analyzed using a unique data set derived from the administration of the social assistance program in Canada over the period 1986-1993 as mentioned in this paper.
50 citations