Academic journal article European Research Studies

Sorting Skills by Location in Romania

Academic journal article European Research Studies

Sorting Skills by Location in Romania

Article excerpt

1. Introduction

Human capital can broadly be defined as "... the productive resources that focus on work resources, skills and knowledge' (OECD) or "human skills and capabilities generated by investments in education and health" (WHO). From these definitions it is clear that human capital must play an important role in the economic development of countries and regions. In fact, aggregate human capital at national or regional level has been a recurrent variable in economic growth models (Barro, 1991 and 1997; Barro and Lee, 1994; Benhabib and Spiegel, 1994; Englander and Gurney, 1994; Hanushek and Kim, 1995; Islam, 1995). However, despite of the wide scholarly agreement of its impact on economic growth there is little consensus on the exact contributions of the different measures and indicators of human capital to economic development (Levine and Renelt, 1992; Rodriguez-Pose and Vilalta- Buffi, 2005). Another important issue related to human capital and economic development and far less studied is the role the economic geography of a country or a region plays with respect to this relationship. At this point the fairly new branch of the spatial economics known as New Economic Geography (NEG) (Krugman 1991 and 1992) has emerged as a new theory which emphasizes the role "second nature geography" variables or economic geography variables play with respect to the spatial distribution of income and human capital across countries or regions as oppose to the role played by "first nature geography" (4) variables (Hall and Jones, 1999). The emphasis of a large number of empirical studies in the NEG literature has been put on the effects economic geography have on either cross-country or cross-regional per capita income differences. This has been done by testing the well-known theoretical proposition that arises in standard core-periphery NEG models which is refer to as the nominal wage equation (Brakman et al., 2004; Breinlich, 2006; Hanson, 2005; Overman et al., 2003; Redding and Venables, 2004; Lopez- Rodriguez et al., 2011). However, recent theoretical developments within the NEG literature (Redding and Schott, 2003) has allowed to extend the empirical investigations to the analysis of the effects geographical location have on human capital accumulation (Rupeika-Apoga et al., 2019).

Redding and Schott's (2003) pioneering paper extend a standard two-sector New Economic Geography model to demonstrate that being located on the economic periphery can reduce the return to skills, thereby reducing incentives for investment in human capital accumulation. To our knowledge, the only empirical investigation at country level of Redding and Schott's (2003) model was carried out by Can Karahasan and Lopez-Bazo (2011) for the Spanish provinces. Their results indicate that the estimated impact of market access vanishes once several controls are included into the econometric specification. However, much more empirical studies on the relationship between human capital and location are needed in order to check for the robustness of the theoretical predictions of RS (2003) model.

This paper tries to add on this literature and partially fill in this gap by applying Redding and Schott' (2003) framework to the case of Romania. The paper therefore stresses, for the case of the 42 Romanian regions, the importance of geographical location in human capital accumulation, showing that the percentage of individuals with medium and high educational attainment levels depends positively on the region's market access whereas the opposite occurs for low educational attainment levels. Moreover, the econometric results show that in Romania between 45% and 59% of the spatial variation in human capital levels is explained by the region's market access.

2. Theoretical framework

The theoretical framework presented here is a short version of the Redding and Schott (2003) New Economic Geography model (NEG henceforth). The difference of our model with Redding and Schott's (2003) model is in the modelling of the role played by intermediate goods. …

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