Abstract
The tendency for human capital to accumulate and for institutional quality to improve as countries develop is well documented. This paper investigates the association of these changes with the evolution of industrial structure toward greater manufacturing sophistication. The empirical analysis is based on a newly constructed panel dataset for 15 industrial categories in 92 countries over the period 1970–2010. The results suggest that the extent to which increased tertiary human capital promotes industrial upgrading is contingent on the level of institutional quality, as measured by an index over size of government, legal structure, access to sound money, freedom to trade and market regulations. Institutional quality is found to be complementary to tertiary human capital in promoting the relative growth of advanced manufacturing.
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Notes
Brain drain occurs when the best university graduates and experts leave a country to seek employment abroad.
The various types of industrial upgrading identified in the literature indicating technological progress of an economy include process, product, functional and inter-sectoral upgrading (Humphrey and Schmitz, 2002). This paper focuses on inter-sectoral upgrading.
In Altinok et al. (2013), measures for primary education alone, for secondary education alone and for primary and secondary education together are reported. In this study, I use the measure for primary and secondary education together as the schooling quality variable in the regression analyses reported in Table 7. While this does not directly reflect the schooling quality of tertiary education, it is assumed that schooling quality of various levels of education within a country is correlated.
Since the human capital and institutional quality measures employed in the data used in this study are at five-year intervals, I calculate the average share of high-tech industries, the average percentage of population with tertiary education and the average summary index of institutional quality by using the arithmetic mean of their values in 1980, 1985, 1990, 1995, 2000 and 2005.
The specification in Eq. 5 can only help detect the role of institutional quality in promoting industrial upgrading on a high-tech and non-high-tech basis, as low-tech and medium-tech industries have been grouped as non-high-tech industries. It would be ideal if the influence of institutional quality could be examined for a classification of high-, medium- and low-tech industries, but this approach would cause a multicollinearity problem that could not be solved by the orthogonalisation method described above.
These theorems state, respectively, that differences in countries’ exports are determined by differences in their factor endowments, and that a rise in the endowment of a factor will lead to a more than proportional output increase in sectors that use the factor intensively, given constant goods prices.
The average chain summary index of institutional quality is 7.0 in advanced economies and 5.6 in developing economies.
Countries are categorized into six regions: Africa, East Asia, Europe, America, Middle East, and Southeast Asia.
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Acknowledgments
I sincerely thank Dr. Jane Golley, Prof. Ligang Song, Prof. Rodney Tyers and Prof. Peter Drysdale for their helpful comments on the draft of this paper. I am grateful for the valuable suggestions on the paper made by anonymous reviewers and Editor in Chief George Hondroyiannis.
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Zhou, Y. Human capital, institutional quality and industrial upgrading: global insights from industrial data. Econ Change Restruct 51, 1–27 (2018). https://doi.org/10.1007/s10644-016-9194-x
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DOI: https://doi.org/10.1007/s10644-016-9194-x