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Educational attainment and regional economic performance in Mexico.

Article Excerpt
Abstract

A growing number of studies confirm the importance of educational attainment and human capital investment as a means for improving per capita income performance. In developing countries, attention to this linkage has primarily been carried out using national data aggregates. For relatively large countries such as Mexico, it is helpful to conduct similar analyses that document regional market income patterns. This paper utilizes 2000 census data for all 31 states and the Federal District in Mexico City to quantify regional income performance. Similar to other studies conducted using regional data in higher income economies, results confirm strong links between education and incomes across Mexico. (JEL R11)

Introduction

Widespread international recognition exists for the positive correlation between education and incomes. It is generally agreed that education leads to improved human capital, and the latter translates into higher productivity [Becker, 1993]. As economies develop, education tends top play a more critical role in raising worker productivity. While policy analysts and government officials understand this relationship, they often do not have access to specific estimates of the income gains that can be associated with labor force improvement. In particular, regional estimates of the quantitative impacts of greater educational achievement are often lacking.

Mexico is geographically large. It includes 31 states plus a special Federal District in which Mexico City, the national capital, is located. Formal years of schooling has increased for the country as a whole, going from 2.76 years per person in 1960 to 6.72 years per person in 1990 [Lopez-Acevedo, 2001]. While the national trend is encouraging, regional income and education patterns vary widely across the country. This paper estimates how income performance is enhanced in Mexico as a consequence of greater educational attainment.

Subsequent sections are as follows. A review of the literature is provided in the next section. The data and methodology are discussed in the third section. Empirical outcomes are then summarized in separate sections for parameter estimation and simulation results. Concluding remarks and suggestions for future research are presented in the final section.

Literature Review

Early studies to emphasize the role of formal schooling in human capital development include Shultz [1961] and Becker [1993]. Those efforts underscore the importance of education as a means of productivity enhancement and incomes improvement. Subsequent efforts examine a large number issues with respect to education and economic performance. National, as well as international, evidence points to numerous benefits that are correlated with greater levels of educational achievement [Welch, 1970; Barro, 1991; Mankiw et al., 1991; Miller et al., 1995].

Although the existence of national labor markets insures that some level of income effect homogeneity is likely to be observed, regional earnings profiles still exhibit a large degree of variability in many countries. Accordingly, much of the recent research on this topic has been conducted for regional and metropolitan economies [Sloboda, 1999; Levernier et al., 2000; Fullerton, 2001; Gottlieb and Fogarty, 2003]. Studies in this category often focus their efforts on lower income regions and use model simulations to illustrate the potential gains from policies designed to encourage higher enrollment and graduation rates.

Multilateral poverty eradication efforts have led to similar studies for Latin American economies such as Mexico in recent years [Lachler, 1998; Lopez-Acevedo, 2001]. One recent effort examined the education and income link for a single metropolitan economy [Ghiara and Zepeda, 2001]. Two separate efforts examine regional income variation across the country [Messmacher-Linartas, 2000; Pagan and Tijerina-Guajardo, 2000]. In Messmacher-Linartas [2000], the return to education is found to have increased in recent years as a consequence of shifts in the demand for labor toward secondary and tertiary segments of the Mexican economy. Because of their respective dates of publication, none of the regional income studies for Mexico was able to utilize the data that became available following the publication of the 2000 census results [INEGI, 2003].

While all of the prior research on regional income variations in Mexico confirms a statistically significant relationship between education and earnings, all of them are based on average years of schooling. To date, there has not been any effort in Mexico to examine the relationship between incomes and completed levels of education. This study attempts to partially fill that gap in the literature by employing the more detailed state level census data collected in 2000. The model specification is based on those developed in earlier efforts published for regional economies in the United States [Sloboda, 1999; Fullerton,...

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