Trade globalization,economic development and the importance of education-as-knowledge

Abstract

It is widely asserted that globalization puts a premium on knowledge, but in fact there is no empirical correlation across countries between globalization and returns to education. One reason for this discrepancy may be that education is not everywhere coequal with knowledge. In this article the overall contribution of education to income is modelled as the sum of the contributions of two components of education, education-as-knowledge and education-as-credential. Assuming that the former dominates in developed countries while the latter dominates in developing countries, it is possible to separate these two effects. In a broadly comparative analysis of returns to education in 80 countries using World Values Survey data, globalization is found to be positively associated with education in developed countries but negatively associated with education in developing countries, consistent with the model. These results are robust in the face of controls for the supply and demand for education.